Warner Bros Discovery has called time on Hollywood’s all-in bet on streaming, as it renounced a growth-at-any-cost strategy in favour of a more traditional approach to selling its films and shows for “maximum value”.
The strategy shift came as the group warned of a difficult economic outlook and reported a net loss of $3.4bn in its first full quarter as a merged company, highlighting the integration challenges facing the sprawling media group.
Warner’s executive team outlined plans to establish a combined streaming service bringing together HBO Max and Discovery Plus, but pointedly described the platform as only “one part” of a broader approach.
Chief executive David Zaslav homed in on the weaknesses of the subscription streaming business pioneered by Netflix as he stressed the commercial strength of traditional television, theatrical releases for movies and ad-funded, free-to-watch models for streaming.
Mocking the “spend, spend, spend and charge very little” approach taken in recent years as media groups fixated on streaming growth, Zaslav said Warner would in future adopt a “more sensible” approach to budgets and pricing.
“It was a reaction to the capital markets — let’s go ahead and collapse businesses and overspend on content,” he said, referring to how media groups sacrificed traditional licensing and theatrical revenues to feed streaming platforms with exclusive movies and shows. “We think we can build a great streaming business that can touch everyone but we are not collapsing businesses into it.”
Zaslav and his executive team acknowledged 2022 would be a difficult year for the company as it sought to integrate Warner and Discovery against the backdrop of a slowing economy.
Warner’s revenues were $9.8bn, with underlying performance slipping 1 per cent. The group’s losses were principally a result of restructuring and transaction costs related to the merger.
Warner also lowered estimates for operating profits to $9bn-$9.5bn for 2022, blaming the more difficult outlook for advertising, overspending on streaming content and a budget position that was worse than the one disclosed pre-merger. Shares in the group fell almost 12 per cent in after-hours trading in New York.
Chief financial officer Gunnar Wiedenfels said Warner’s financial performance was not indicative of its underlying health or prospects but reflected how management was starting from “a less favourable position” than expected.
Zaslav has personified the return of budget discipline following a spendthrift era in Hollywood. Warner is aiming to cut $3bn in costs over the next two years, a target executives have described as conservative.
The axe has already fallen on prominent projects since Discovery completed the acquisition of Warner in April. Zaslav closed the CNN Plus streaming service within weeks of its launch and shelved JJ Abrams’s big budget HBO series Demimonde.
This week, it scrapped the movie Batgirl during the final stages of its production, threatening to heighten tensions with some top talent in Hollywood. Batgirl’s directors Adil El Arbi and Bilall Fallah publicly expressed disbelief with the decision, saying it was “critical” their work was shown to an audience.
Zaslav brushed off the criticisms. “Strategically we’ve looked hard at the direct-to-consumer streaming business,” he said, responding to a question about the last-minute cancellation. “This idea of expensive films going straight to streaming, we cannot find an economic case for it.”
Warner disclosed it had gained 1.7mn streaming subscribers in the three months to June, a pace of growth that fell short of analysts’ expectations.
Using a new method for calculating combined subscriptions, the company disclosed it had a total of 92.1mn global subscribers to its two main streaming platforms, HBO Max and Discovery Plus. It aims for the service to be profitable by 2024 and set a target for 130mn paying subscribers by 2025.