WBD Profit Falls 91% on Linear TV, Theatrical Revenue Declines

• Warner Bros. Discovery reported a profit of $149 million, or 6 cents per share, and revenue of $8.7 billion, compared to a loss of 1 cent per share and revenue of $9.21 billion expected by Wall Street

• The media giant’s pending $110 billion merger with Paramount is on hold as a lawsuit with state attorneys general and the WGA moves to a March 2027 antitrust trial

• WBD shares fell 0.5% in pre-market trading on Thursday following the release of the quarter’s results

Warner Bros. Discovery’s second-quarter profit fell 91% to $149 million, or 6 cents per share, and revenue declined 11% to $8.7 billion as the media giant’s continued progress in streaming was overshadowed by ongoing declines in the linear TV business and lower revenues in its studios business.

Weighing on the results was a 22% decline in ad revenue, driven by the absence of the NBA and continued pay TV subscriber declines, and a 26% drop in content revenue due to lower theatrical, TV and games revenues. WBD also incurred $1.1 billion in “pre-tax acquisition-related amortization of intangibles, content fair value step-up, and restructuring expenses.”

However, streaming was a bright spot, with direct-to-consumer revenue growing 10% to $3.08 billion and profits soaring 75% to $512 million, driven by HBO Max’s international expansion and growth in existing markets, an increased in ad-lite subscribers and content such as “Euphoria,” “House of the Dragon,” “The Pitt” and “Hacks. ”

WBD has joined Netflix and Disney in no longer breaking out streaming subscribers on a quarterly basis, but previously forecast it would exceed 150 million by year end.

Streaming stays strong

Streaming distribution revenue grew 12% to 2.7 billion, driven by HBO Max’s international expansion and growth in existing markets, including new distribution deals.

Ad revenue climbed 9% to $306 million, driven by an increase in ad-lite subscribers. But the company acknowledged the ad business was hurt by the absence of the NBA. Meanwhile, content revenue tumbled 18% to $84 million.

More than 50% of new subscribers selected ad-supported streaming plans during the quarter, bringing its overall global mix to 40%, an increase of 11% year over year.

Studios continue to struggle

Studios profit dropped 89% to $96 million and revenue fell 39% to $2.33 billion, which was primarily driven by a 41% decline in content revenue.

Theatrical revenue tumbled 46% on lower box office revenue compared to the performance of “A Minecraft Movie,” “Sinners,” and “Final Destination Bloodlines” in the prior year quarter. The only major releases this quarter were “Lee Cronin’s The Mummy” and “Mortal Kombat II.”

TV revenue plunged 45%, primarily driven by lower intercompany content licensing due to the timing of renewals. Games revenue slid 45% on the release of “LEGO Batman: Legacy of the Dark Knight.”

Linear networks feeling the pressure

Global linear network profits declined 4% to $1.45 billion and revenue fell 17% to $4 billion.

The results were driven by a 10% decrease in domestic linear pay TV
subscribers, which was offset by a 1% increase in domestic affiliate rates, and a 9% drop in content revenue due to the timing of third party licensing deals.

The segment was also weighed down by a 27% drop in ad revenue, largely due to a 17% decline in domestic audiences from the absence of the NBA. That was offset by the broadcast of the NCAA March Madness Final Four and Championship
in the current year, as well as the absence of the NHL Stanley Cup Finals broadcast.

Paramount deal in limbo

The latest quarterly results come as the company’s pending $110 billion merger with Paramount Skydance has been put on hold after a group of 12 state attorneys successfully pushed the company to delay the deal until the conclusion of its antitrust trial.

A 12-day trial has been scheduled to start March 2, 2027, which will put Paramount on the hook for over $1 billion in ticking fees. The 25 cent per share fee, which takes effect starting Oct. 1, translates to to a payout of roughly $650 million per quarter, or $7 million per day, until closing.

Paramount said it would push the closing of the merger back until five days after the outcome of a trial, or June 1, 2027, whichever comes earliest. Per the terms of the merger, the outside date is March 4, 2027, though it includes an automatic one-time extension that would push back the deal’s deadline to June 4, 2027, if all closing conditions except for regulatory approvals and governmental orders have been satisfied or waived.

In the event that the deal does not close at all due to regulatory matters, Paramount will pay WBD a $7 billion termination fee.

In addition to the state AGs and WGA, a Paramount shareholder and a group of consumers filed separate lawsuits to block the merger, though the latter was dismissed by a judge.

Despite the lawsuits, the deal already received approval from the U.S. Department of Justice and Warner Bros. shareholders. The European Commission also cleared the deal with conditions, including Paramount’s exit from United International Pictures.

Other countries where the deal has received clearance or where relevant waiting periods have expired include Australia, Austria, Brazil, Canada, China, Kuwait, Saudi Arabia, Serbia, South Africa, Ukraine, Montenegro, New Zealand, and North Macedonia. Foreign direct investment authorities in Spain, Germany, Slovenia, Belgium, Czechia, Italy, France and Romania have also signed off.

However, the United Kingdom’s Secretary of Culture, Media and Sport Lisa Nandy previously said she is “minded to intervene”. The U.K. Competition and Markets Authority will decide whether to clear the merger or refer it for a more in-depth Phase 2 investigation by Friday.

In addition to the UK, the U.S. Federal Communications Commission is reviewing the foreign investment in the deal, though a specific timeline for completion has not been publicly announced.

More to come…