Warner Bros. Discovery’s stock dropped significantly on Friday after the company announced its Q4 financial results, as total revenues fell by seven percent, a bigger drop than expected by the market. But despite the overall negative perception of WBD’s results from investors, there was good news on the streaming front. Warner Bros. Discovery’s streaming service Max turned a profit across the full year – something which most of its competitors (bar Netflix) are yet to do. And the turnaround has been speedy with the $100 million profit made last year marking a $2.2 billion improvement from the year before on a pro forma basis.
The negatives for WBD came from its studios and linear networks businesses. Studios revenues, which were down 17 percent year-on-year in Q4. were hit by the Hollywood strikes, which dried up the content pipes across the year. Network revenues meanwhile continued to be hit by falls in the number of pay TV subscribers in the US, and a tough linear ad market.
But while some businesses have accepted significant losses on the streaming front, leaning on profits from other segments in order to stay sustainable. WBD has focussed on driving profitability in the near term. The advantage is that while some others are hoping they can turn their streaming units profitable before profits from their linear businesses dry up, WBD knows it’s already found a workable formula. Now the company will look to deliver further growth based on this strategy.
Investing in what’s working
Subscriber growth is generally given a lot of focus when judging how streaming services are faring. But while WBD did see overall subscriber growth across the year, the gain was marginal. Total subscriber count in Q4 was 97.7 million, up just 800,000 from Q4 last year. And this figure fluctuated across the year – it was down to 95.9 million in Q3.
But while subscriber count gains have been slim, the media giant has successfully driven up average revenue per user (ARPU). ARPU in the US reached $11.65 in Q4 last year, up seven percent from the previous year. International ARPU meanwhile reached $3.88 in Q4, up 12 percent year-on-year.
Price rises have played a role here, but so too has growth in the streaming units ad business.
The company has seen significant growth in its ‘ad lite’ subscription tier in the US (which, despite the name, is its only ad-supported tier). It also saw investments in advanced advertising capabilities and data-based ad offerings, paying off at the Upfronts – with these revenues feeding into Q4. The company expects to see further gains on this front at this year’s negotiations. “We are optimistic that the efforts we’ve undertaken on digital and advanced advertising solutions, much of which you’ll hear about leading up to and during the upfront, will enable us to achieve a more competitive profile,” said CEO David Zaslav on an earnings call.
The company’s approach to distribution has also yielded results, effectively driving down costs by distributing content through third-parties where necessary.
Gunnar Wiedenfels, WBD’s chief financial officer, said on the earnings call that the company has “no religion” in regards to warehousing all the content it makes on its own streaming service, or not doing business with competitors. However, all the deals it does nowadays are ‘co-exclusives’, meaning the company doesn’t give up streaming rights completely.
Wiedenfels said that Warner Bros. Discovery now has a decent understanding of where different types of content will monetise best, giving it “the best possible view on what the strategic and financial merits of exploitation on our own platforms versus partial exploitation with third parties are”.
“We’ve got all the data,” said Wiedenfels. “We know exactly what we’re giving up, and we know exactly what we’re winning.”
It seems however that the company is increasingly confident in its own ability to generate the best returns on its content. Warner Bros. Discovery plans to roll out its flagship streaming service in a number of major markets this year, including the UK, Germany, and Italy – three markets where it’s previously licensed streaming rights out to Sky.
