Warner Brothers Discovery Earnings Call

Warner Brothers Discovery Earnings Call

CEO David Zaslav just held Warner Brothers Discovery’s first quarter earnings call for 2023.  This was the first earnings call that was mostly the fruits of his labors.  There is still about a year’s worth of inertia from the pipeline setup by the previous regime. However, this is the first time that Zaslav was expected to show positive results of his regime.

Keep in mind this is an investor call, not a media event.  There are some facts that it is illegal for Zaslav to misrepresent.  There are too many eyes on the numbers he is declaring to claim something that is patently false.  Now that said, any CEO will of course shine as much sunny optimism on a quarterly as he can.

I won’t be bothering much with the theatrical or cable side of things. Black Adam bombed, we know it, moving on.  HBO knocked it out of the park with House of the Dragon and The Last of Us, moving on.

HBOmax was the part that everyone was really curious about.  There was no question it was going to lose money, the issue was by how much?

HBOmax Direct To Consumer (DTC) losses are $1.5 billion for the fiscal year 2022.

I realized that sounds bad. BUT, this is for a total fiscal year.  Compare that to Disney’s losses with Disney + and it doesn’t look bad at all because Disney has been losing that amount every quarter.

Warner has 96 million DTC HBOmax subs.

Disney has 200 million DTC Disney + subs. That is worldwide and includes Hulu and Hotstar.

The Subscriber Wars are over.  For all of its having better than twice as many subscribers as HBOmax, it’s costing Disney a ton more money. 

Much more importantly, this quarter’s DTC losses were only $200 million.  Compared to the money hemorrhage that is going on with every other studio streaming service, that is excellent news.

Moreover, Zaslav claims they might even break even by the end of this quarter or at least get close to it.  Iger is promising nothing of the kind at Disney.

The really big news is that he is projecting that HBOmax will be at $1 billion in positive DTC income by the end of the year.  That strikes me as a bit rosy, but Disney is again predicting nothing of the kind. This would make HBOmax the first of the studio-owned streaming services to EVER show a profit.

Next. Warner Games knocked it out of the park this quarter.  No surprise and no secret as to how that happened.

Hogwarts Legacy pulled in an epic $830 million in its first two weeks of release.  Presales were heavy and an expected drop-off has started but frankly, it doesn’t matter. If they don’t sell another copy, Zaslav and Rowling would still be laughing.

There was no announcement for the head of the Warner Wizarding World or whatever they call it.  Zaslav said there would be a major media event on April 12th, which is probably where they will do that.  We can read the tea leaves from a few things that he was barely keeping himself from talking about openly.

One. Warner’s position is that superhero movies are sooo 2015.  Zaslav believes the current superhero cycle is played out, there is still some money to be had but the gold rush is over. Budgets and expectations will need to be adjusted accordingly. The dog is dead, but the tail still wags.

Two.  Video game-related media is the new hotness. This is very good news or at least can be interpreted as good news for Warner Brothers Discovery because Disney absolutely sucks at video games.  They had a chance to move in on it when they picked up Lucas Arts along with Star Wars but they shitcanned the whole operation for a tax write-down.  Warner Games on the other hand is very strong and is a significant gaming studio in its own right.  Better still, related media (ie The Last of Us TV show) is very strong.

Three.  When Discovery gets rolled into HBOmax the combined services will get a new name.  Probably one without HBO in the title.  HBO has been an established brand for fifty years and while it occasionally hosts children’s programming like Fraggle Rock, it simply isn’t a family-friendly brand. Nor is it a lifestyle brand.* It’s better off remaining a premium cable channel and nothing else. I think the fundamental problem here is that Disney is definitely a lifestyle brand but any variant on HBO is just going to another “CBS All Access”.  The consumer’s reaction is ‘why should I pay extra for something I’ve already got on TV?’  Look for some variant on the Warner Brothers studio logo on the brandname with Bugs and Daffy to be the new streaming service masthead.  

Guys whatever you do, don’t name it “Warner Brothers +.”   

Four.  There appears to have been a court decision somewhere along the line that favors Warner Brothers Discovery with regard to their rights to the Lord of the Rings.  The reason I’m saying that is the wording on a few things from WBD and the Embracer Group. 

The fundamental problem is that when Saul Zaentz bought up JRR Tolkien’s media rights apparently neither side consulted an attorney. So, neither side knew how to write or indeed read a contract.  It says a lot about the situation that when Lord of the Rings: The Rings of Power was announced, the Saul Zaentz Company said, “we think we have recovered the film rights to the Lord of the Rings.”

Warner replied, “No, you haven’t.” Then started production on War of the Rohirrim as a rights retainer.

At which point the Saul Zaentz Company basically said, ‘w-e-l-l, shit!‘ And sold their rights to the Embracer Group.  Embracer, WBD, and New Line appear to have something more binding than a gentlemen’s agreement now.  They will be moving forward on Lord of the Rings movies.

Given the emphasis on the importance of gaming media here are my projections for the April 12 Media Event.  

Zaslav is there to get the company ready for a sale. That means making it attractive to a buyer, which is no mean feat when the company in question has $50 billion in debt.  The revenue stream needs to be strong but future commitments to present-day operations need to be undaunting.

Zaslav is going to favor low-risk approaches.  DC, we already know about.  Mostly TV projects and one Superman movie with an unknown starring as Kal-El.

He will be announcing new Lord of the Rings movies in April and again with the importance given to video games, the path of least resistance would be Shadow of Mordor.  This would also be a fairly loud dick slap for Amazon. We’ll see if they can resist Woke casting.

For the same minimal risk reasons, the new Harry Potter project will almost certainly be based on Hogwarts Legacy.  This one is fresh in people’s minds and is obviously successful. Fantastic Beasts has been memory-holed and is never to be mentioned again.

The final takeaway here is that Zaslav’s strategy is fundamentally different from Disney’s.  Iger and Chapek were spending for the subscription.  Zaslav is spending for the audience.

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*Disney is a lifestyle brand but in my view, it is now significantly brand damaged. Most parents would not feel comfortable with their young children watching it unsupervised.

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