With its 2023 results, Warner Bros. Discovery Inc. became the first media conglomerate to post a full-year profit from its streaming business.
The company's direct-to-consumer (DTC) segment finished 2023 with $103 million in EBITDA. The unit — which features aggregate streamer Max, Discovery+ and premium channel HBO — reversed a loss of almost $1.60 billion, or $2.06 billion on a pro forma basis, in 2022.
Calling building Max "the top priority," President and CEO David Zaslav told analysts on a Feb. 23 earnings call that the company fought hard to get the streamer into the black last year.
"We are now committed to driving profitable top-line growth ... and are on track to achieve our guidance of $1 billion in EBITDA in 2025," Zaslav said.
WBD reached streaming profitability despite a $55 million EBITDA deficit in the fourth quarter, which significantly narrowed from a $217 million loss on a pro forma basis in the corresponding year-earlier period. Full-year 2023 profitability for the streaming business was driven by positive results in the first and third quarters.
While streaming market leader Netflix Inc. is profitable, the streaming businesses of Walt Disney Co., Paramount Global and NBCUniversal Media LLC have yet to cross that threshold. Disney executives reaffirmed on their most recent earnings call that Disney's DTC business will become profitable by the third quarter of 2024.
WBD's fourth-quarter DTC revenue increased 3% year over year to $2.53 billion. The business was boosted by a 4% rise in distribution revenue to $2.17 billion, tied to price increases in the US and some international markets, plus new partnership launches. DTC ad revenue expanded 51% to $186 million behind subscriber growth and higher US engagement with Max. However, content revenue declined 30% to $171 million, owing to the timing of third-party licensing deals.
During the full year, DTC revenue rose 5% to $10.15 billion, with growth emanating from the advertising advances and increased third-party licensing overall.
On the customer front, WBD added 2.6 million subscribers in fourth quarter 2023 to finish the year with 97.7 million. The fourth-quarter growth reflected the acquisition of Turkish streamer BluTV, which added 1.3 million subscribers, as well as the transfer of TNT Sports Chile from the company's networks segment. Backing out those contributions, DTC subs would have increased by 500,000 in the quarter.
Zaslav noted that the company will be pulling many levers to boost its DTC unit. Max will roll out to Latin America next week, with launches in Europe, the Middle East and Africa and Asia-Pacific markets to follow. Those launches will include Belgium and France to coincide with the Paris Summer Olympics.
"We are only available in less than half the addressable households and markets as compared to our larger peers, so we still have a huge opportunity for growth from globalization over the next two years," said Zaslav, pointing to opportunities in the UK, Germany, Italy, Australia and Japan.
Currently only available in the US, Max's ad-supported service tier will be available in 40 international markets by year-end.
CFO Gunnar Weidenfels said the company expects the pace of DTC advertising to accelerate in the current reporting period. He said the DTC ad business is being buoyed by upfront deals, higher engagement on Max and continued subscriber growth, and it will be "an impactful segment driver for 2024 overall."
Weidenfels said due to regional and key market launches heavily weighted toward the first half of 2024, DTC EBITDA is forecast to be modestly negative over the period, before recovering in the second half en route to a second year of profitability.