Key Takeaway:
- The company posted a $2.9 billion net loss in its Warner Bros. Discovery Q1 earnings compared to a $453 million loss a year ago.
- Results were heavily impacted by a $2.8 billion termination fee stemming from a failed Netflix deal.
- Global streaming subscribers surpassed 140 million, with a year-end goal of 150 million.
Warner Bros. Discovery reported a $2.9 billion first-quarter net loss Wednesday, driven by acquisition-related charges, restructuring expenses, and a multibillion-dollar termination fee linked to its pending sale to Paramount Skydance.
Paramount Deal Drives Massive Quarterly Loss
The media company said its quarterly loss widened sharply from $453 million a year earlier. The loss included $1.3 billion in pre-tax acquisition-related amortization, content valuation adjustments and restructuring costs.
The results also reflected a $2.8 billion termination fee connected to a failed transaction with Netflix. Netflix withdrew from a proposed agreement to acquire certain Warner Bros. Discovery assets after Paramount Skydance submitted a higher offer earlier this year.
Under the terms of Paramount’s acquisition agreement, Paramount agreed to cover the termination fee. However, the obligation remains on Warner Bros. Discovery’s books until the deal closes.
The company said the fee could still shift back to Warner Bros. Discovery under certain conditions, including if Paramount terminates the agreement or a higher competing bid emerges.
Paramount said earlier this week that it expects the acquisition to close in the third quarter following shareholder approval in April and ongoing regulatory review.
Streaming Growth Offsets Weakness in TV Networks
Warner Bros. Discovery reported first-quarter revenue of $8.89 billion in its Warner Bros. Discovery Q1 earnings, down 1% from the same period last year. Adjusted earnings before interest, taxes, depreciation, and amortization rose 5% to $2.2 billion.
The company ended the quarter with $33.4 billion in gross debt.
Streaming remained a bright spot for the company as HBO Max expanded internationally. Streaming revenue increased 9% to $2.89 billion, driven by subscriber growth and stronger advertising sales from the platform’s ad-supported tier.
In a shareholder letter, the company said it surpassed its target of more than 140 million global streaming subscribers during the quarter and remains on pace to exceed 150 million subscribers by year’s end.
“Our streaming business continues to show strong momentum globally,” the company said in the letter.
Advertising revenue within the streaming division rose 20% year over year as more customers signed up for lower-cost advertising-supported plans.
Linear TV Advertising Continues To Decline
Warner Bros. Discovery’s traditional television business continued to face pressure from declining advertising demand and shrinking pay-TV audiences.
Revenue from the company’s linear television networks, including CNN, TBS, and Discovery Channel, fell 8% to $4.38 billion.
The company said advertising revenue in the segment dropped 11%, largely because it no longer carries NBA media rights.
Meanwhile, the studio division posted stronger results. Revenue for the film and studio business climbed 35% to $3.13 billion compared with the same quarter last year.
Analysts continue to watch whether the Paramount acquisition can strengthen Warner Bros. Discovery’s balance sheet and expand its streaming scale as legacy television revenues decline across the media industry.
Shares of Warner Bros. Discovery were little changed in after-hours trading on Wednesday. Following the Warner Bros. discovery Q1 earnings report.
