On Friday, Warner Bros. Discovery (WBD) will announce its full yr 2023 monetary outcomes to traders in its fourth quarter 2023 earnings name. It’s going to make for laborious studying by each traders and WBD senior administration alike. Additionally it is more likely to be the corporate’s most vital set of outcomes for the reason that April 2022 merger between Warner Media and Discovery that spawned the media main. Since that point, the brand new entity has needed to mix managing the assumed Warner Media debt with investing in content material and tech to compete within the home and worldwide video streaming wars. WBD’s $24 billion market cap (down 60% since April 2022) contrasts with its present $42.4 billion in internet debt (debt minus money available). The vast majority of that is due in additional than seven years time, theoretically giving WBD time to course appropriate – a process made rather more tough by the working lack of $2.1 billion in FY 2022. 

Streaming is now much less about content material, and extra about retention and promoting

From an traders’ perspective, the elephant within the strategic-decision-making room is the direct-to-consumer (DTC) phase that is still loss-leading and commits WBD to a continued aggressive content material funding. In 2021, the now WBD CEO, David Zaslav said that the 2 mixed corporations would spend a mixed $20 billion yearly on content material (considerably forward of Netflix’s $17 billion content material spend for that yr). The brand new firm would goal to broaden its streaming companies, to achieve a complete 400 million international subscribers. By Q3 2023, nevertheless, whole DTC subscribers have been all the way down to 95.1 million (from 96.1 million in This fall 22) and DTC revenues stood at $2.438 billion (barely down from $2.451 billion in This fall 22).

US information from MIDiA’s Q3 23 quarterly client survey helps exhibits why WBD’s DTC enterprise is struggling to develop. 18% of US Max weekly energetic customers (WAUs) engaged in savvy switching (strategically subscribing and unsubscribing primarily based on content material availability). Whereas that is above the buyer common of 11% savvy switching, it’s comparable with Hulu and solely barely larger than Amazon Prime and Netflix. The excellent news for WBD is that its savvy switching drawback is much less extreme than for Disney (Disney+ savvy switching stood at 18% for this quarter) and noticeably lower than for Apple (Apple TV+ savvy switching stood at 32% for Q3 23).

The sliver lining in WBD’s outcomes will probably be the continued sturdy efficiency of its ad-supported DTC income (which was up 29% in Q3 2023). It will spotlight the good transfer it made to have an ad-supported element as a part of its commonplace subscription video on demand (SVDO) companies from launch regardless of rival Netflix and Amazon solely providing ad-free alternate options on the time. The swap by each main incumbent SVODs opponents into rolling out ad-supported subscription video on demand highlights the underlying tolerance of customers for paying much less for ad-supported subscriptions (a lesson learnt way back in WBD’s conventional pay-TV origins).

What’s subsequent for WBD?

Whereas Friday’s earnings outcomes will assist to make clear the underlying enterprise fundamentals for WBD, it’ll nonetheless go away laborious selections for traders and the WBD c-suite. In the end, it’s probably {that a} return to extra conventional types of long-term contract will change into important for offering larger predictability in content material funding and lowering important churn prices. Alongside this, a larger concentrate on taking part in to WBD’s advert heritage strengths will hopefully assist to maintain DTC advert income development amid rising advert competitors from Netflix and Amazon.

In the end, what WBD does subsequent can have main ramifications for the broader enterprise of movie and TV manufacturing and monetisation, and in the end the continued evolution of the streaming TV period. If  WBD  can not make the economics of streaming add up then it might want to decide to a radical re-imagining of its mental property (IP) for which it stays a number one custodian throughout leisure. Nonetheless this won’t be with out important threat because the rising fashions of monetising video fandom within the streaming TV period search to determine themselves.