- Warner Bros. Discovery missed on the top and bottom lines during Q1, but its stock still rose.
- The company's streaming advertising revenue grew significantly.
- However, that promising growth will be in jeopardy if NBC steals NBA rights from TNT.
There weren't many bright spots in Warner Bros. Discovery's first-quarter earnings report.
The media giant missed Wall Street's estimates as its quarterly revenue tumbled 7% to just under $10 billion, versus $10.7 billion in the first three months of 2023. And while WBD's $0.40-per-share loss was 4 cents better than last year, it was still lower than analysts had hoped for.
Despite this seemingly dismal result, investors are cutting CEO David Zaslav and the company some slack. Shares of WBD rose 3.1% on Thursday after it reported earnings, though that may merely be a relief rally after a sizable sell-off.
Investors seem to have more confidence in WBD's core streaming business, which significantly grew advertising revenue last quarter in addition to subscribers and average revenue per subscriber — largely thanks to an apparent surge in engagement with live sports.
That puts even more pressure on Zaslav to retain WBD's marquee sports rights, including the NBA, with which it is in the middle of negotiations.
A notable win for Max may be short-lived
WBD's solid post-earnings gain suggests investors are less worried about the company's streaming segment, which has struggled since Max's relaunch last May.
Warners added about 2 million net streaming subscribers globally in the first quarter, bringing its total to 99.6 million. Those customers paid an average of $7.83 a month, which is up about 4% year-over-year, and US-based users coughed up $11.72 each, compared to $10.82 early last year.
But, arguably, Warners' most encouraging sign in streaming is that DTC advertising revenue surged 70% to $175 million during the quarter, even as ad revenue from its networks side fell 11% from 2023. This is no small feat, given that the ad market has been in a tough spot for a while.
There's a simple explanation for WBD's streaming ad growth despite modest subscriber additions: the advent of live sports on Max.
The company launched the B/R Sports Add-On for Max last October, which allows subscribers to watch NBA, MLB, NHL, and college basketball games for no extra charge. And while WBD hasn't given many details on how many of its users watch sports on Max, it was popular enough for the company to cite during earnings as a critical driver for its DTC ad growth.
As impressive as WBD's burgeoning streaming ad business looks now, it may be nothing more than a blip if Comcast's NBC outbids TNT for NBA media rights in the league's next TV deal.
Media analysts have warned that WBD can't afford to lose NBA games, as cable distributors would trim their affiliate-fee payments to the company in a crushing blow to its already-shrinking cable business. WBD would also be giving up hundreds of millions of dollars in ad revenue, as the NBA makes up over three-quarters of TNT's sports viewership, according to UBS estimates.
While WBD's networks segment would be hit hardest if it lost the NBA, it's now clear that Max's engagement could dip, which may stunt or even reverse its streaming-ad growth while revenue from traditional TV is steadily declining. And NBA fans may even be more likely to cancel Max.
Suddenly, it seems like Zaslav is taking an even bigger risk by playing hardball with the NBA.