Warner Bros. Discovery teases more 'Lord of the Rings' films -- and its 'pivotal' 2023 could hang on this videogame
By Bill Peters
'Hogwarts Legacy' launched on Feb. 10, and has already brought in more than $850 million in retail sales
After last year's messy mega-merger, executives at Warner Bros. Discovery Inc. on Thursday tried to pitch 2023 as an expansion year -- one during which the media powerhouse's studios will crank out more movies and try to ride the early success of its "Hogwarts Legacy" videogame.
Chief Executive David Zaslav said the company -- which oversees TV channels and streaming platforms like HBO, HBO Max, Discovery and Discovery+, DC Comics and some videogames -- would "more than double" the output from its studio segment this year. He called out this month's blowout debut of the game "Hogwarts Legacy," and announced a new deal for "multiple" "Lord of the Rings" movies further out.
Chief Financial Officer Gunnar Wiedenfels, during Warner Bros. Discovery's (WBD) earnings call on Thursday, said this year would be "pivotal" for the company's studio business.
"Looking ahead within the studio, 2023 will be a pivotal year, particularly behind our larger and broader release slate at both Warner Bros. Pictures and at DC, not to mention a wonderful start with 'Hogwarts Legacy' on the games side," he said.
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"Hogwarts Legacy" launched on Feb. 10. Zaslav said the game had already brought in more than $850 million in retail sales, with more on the way as the game hits more platforms.
Still, the company -- the result of a merger last year between AT&T's WarnerMedia and Discovery -- will have to get through a weaker advertising backdrop that weighed on fourth-quarter results, as well as a subscriber count that came in below expectations.
Warner Bros. Discovery reported a fourth-quarter net loss of $2.08 billion, or 86 cents a share, after a profit of $38 million, or 8 cents a share, in the same quarter in 2021. Revenue came in at $11 billion, compared with $3.19 billion in the prior-year quarter. The company finished the quarter with 96.1 million subscribers.
On a GAAP basis, analysts polled by FactSet expected Warner Bros. Discovery to report a loss of 35 cents a share, on revenue of $11.2 billion. They expected a subscriber count of around 96.33 million.
Shares slid 3.4% after hours.
Zaslav, in the company's earnings release, said that "major restructuring decisions" were "behind us." However, Warner Bros. Discovery has faced more cautious advertisers, ongoing cord-cutting, competition within streaming and upheaval created from the merger deal itself. In an effort to shore up the bottom line, the company has cut jobs and content -- including CNN+ and a "Batgirl" film set for HBO Max.
In a filing in December, Warner Bros. Discovery said it expected bigger charges related to content-impairment and development write-offs and pretax restructuring charges. But it said that the ongoing reorganization, expected to be largely complete by the end of next year, "could result in additional impairments above the revised estimates."
Ahead of the fourth-quarter earnings, some analysts said the results would present an opportunity for management to reframe the company's path forward.
"More importantly, we believe 4Q is an opportunity for management to turn the page to 2023 and reset the narrative," BofA analysts said in a note last month.
"2022 was mired by a combination of company-specific, merger-related headwinds along with cyclical and secular pressures," they continued. "At this point, the majority of heavy lifting (related to restructuring charges etc.) has been completed, direct to consumer (DTC) losses peaked in '22 with a path to breakeven in '24 and the cyclical headwinds should abate as macro conditions improve."
They added that advertising trends in January appeared to have improved from December.
The Wall Street Journal this month reported that Warner Bros. Discovery planned to keep Discovery+ as a standalone streaming platform, as the company weighs how to make more of its content available in a single place. The Journal said that rather than fully combine Discovery+ and HBO Max as once planned, Warner will move ahead with a platform that "will feature HBO Max content and most Discovery+ content, with Discovery+ remaining available as a standalone option."
Benchmark analyst Matthew Harrigan, in a note this month, said that decision was "not surprising given the likelihood of losing some price-sensitive customers for whom shows like 'House of the Dragon' or critically acclaimed new hit 'The Last of Us' does not resonate, or at least not enough to pay a likely higher price than the present $15.99/$9.99 (with ads) for HBO Max."
Shares of Warner Bros. Discovery have tumbled 45.2% over the past 12 months. By comparison, the S&P 500 index has fallen 5.8% over that period.
(END) Dow Jones Newswires
February 24, 2023 08:01 ET (13:01 GMT)
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