Why is Wall Street Unimpressed with WBD Streaming Profits? Password-Sharing Crackdown Next in Zaslav’s Plans
Bloomberg’s Lucas Shaw reports that despite WBD’s streamers ending 2023 in the black, it has fewer domestic streaming subscribers than it did seven years ago.
When Warner Bros. Discovery announced its fourth quarter 2023 earnings last month, it had to report that despite some seemingly positive news on the streaming side of the company, the company’s overall revenue was continuing to plummet, dragging the legacy media enterprise even further down than it already was in the eyes of Wall Street analysts. WBD executives were quick to point out that the company saw streaming profits of $103 million for 2023, making Max and discovery+ the first major subscription video services outside of Netflix to become profitable. However, a further investigation into the numbers, as outlined by Bloomberg's Lucas Shaw, shows that there is more to that accounting than CEO David Zaslav would like onlookers to believe, which explains why Wall Street was not jumping for joy over WBD’s streaming profits.
- WBD has fewer streaming customers now than it did in 2017, when HBO pulled in a profit of $2.2 billion.
- The $103 million profit reported by WBD from its streamers in 2023 apparently includes linear HBO profits, as well as licensing fees.
- WBD recently announced it was shutting down its MotorTrend+ streaming service in order to cut down on costs.
Wall Street analysts were able to see through the profitability smokescreen WBD tried to deploy around its direct-to-consumer segment in 2023. The $103 million in profits from that segment reportedly includes not only profits generated by Max and discovery+, but also from the linear HBO cable channel and from licensing fees from deals with Netflix to stream HBO titles. This means that WBD’s streamers are still not quite ready to stand on their own feet as profit generators since their status as profitable still relies on some linear TV revenues as well as licensing fees that are still tied, at least in part, to titles that initially aired on the company’s premium cable channel.
Worse yet for WBD, it has seemingly taken a-two-steps-forward, one-step-back approach in the past seven years. The company has 52 million domestic streaming subscribers presently, which helped it pull in its supposed $103 million profit last year. However, in 2017, HBO had 54 million domestic streaming subscribers (when the platform was called HBO Now) and pulled in a profit of $2.2 billion.
Zaslav has followed a cut-and-slash approach since taking over WBD in 2022, when WarnerMedia was acquired by Discovery. Zaslav engaged in a pattern of content cuts to try and slim down streaming costs for the company, which took another step toward that goal last week when it announced the impending shutdown of the MotorTrend+ streaming service.
Is WBD Doomed to Chase Netflix’s Success?
Zaslav is facing a quandary that all CEOs of legacy media companies are confronting, these days. He has to figure out a way to compete with Netflix, which has a huge lead on all other platforms in terms of subscribers and profitability.
At the moment, WBD is attempting to do this by making its flagship streamer a multifaceted platform that replicates the traditional cable bundle as much as possible. Max carries HBO’s prestige series, reality content from cable channels like Food Network and HGTV, live news from CNN, and live sporting events being shown simultaneously on TNT and TBS. The question becomes how long Zaslav (and WBD’s shareholders) will have patience with this approach, especially if the company continues to build profits and trim down its debt so slowly.
Shaw reports that WBD will pursue measures against password-sharing similar to those that first rolled out from Netflix in May of 2023. Disney is also changing its rules to halt password sharing on its streamers, as companies have observed Netflix’s success in converting former sharers to paid account holders. A recent survey showed that 56% of streaming audiences in the United States are still using someone else’s password to watch a service, so there are certainly subscribers to be had by spreading these rules.
It will be fascinating to see what the joint venture streaming service coming from Disney, Fox, and WBD will do for the bottom lines of the three companies involved. This streamer will essentially be a skinny cable channel bundle, which may artificially inflate DTC profits for these companies as it siphons off customers who were formerly attached to a traditional cable package to watch the channels included in the bundle.
If password-sharing rules are not effective in bringing WBD a significant bump in profits, it may have to take more drastic steps like selling CNN to find its next evolution as a company. The next few years will be critical for legacy media companies like Warner Bros. Discovery, as they try to change and grow their businesses to reflect a shrinking demand for cable and an evolving streaming marketplace that’s still dominated by Netflix.
Max
Max is a subscription video streaming service that gives access to the full HBO library, along with exclusive Max Originals. There are hubs for content from TLC, HGTV, Food Network, Discovery, TCM, Cartoon Network, Travel Channel, ID, and more. Watch hit series like “The Last of Us,” “House of the Dragon,” “Succession,” “Curb Your Enthusiasm,” and more. Thanks to the B/R Sports add-on, users can watch NBA, MLB, NHL, March Madness, and NASCAR events.
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