Warner Bros. Discovery (WBD) management is betting streaming video can save their company.
Consequently, they will merge HBO Max and Discovery Plus to form the Max Streaming Service on 23 May 2023. I think Max could be a major player in streaming because it controls an enormous amount of content.
Warner Bros Discovery (NASDSAQ: WBD) combines Discovery with the historic Warner Brothers movie studio, DC Comics, and what’s left of cable mogul Ted Turner’s 1990s media empire. WBD’s properties include CNN, the Discovery Channel, HBO, Hanna Barbera, TNT, The Cartoon Network, Turner Classic Movies, TBS, the Food Network, HGTV, and more.
Warner Bros’ vast Library
Warner Bros Discovery content includes: Batman, Wonder Woman, Superman, The Flash, The Justice League, the Arrowverse, Harry Potter, The Green Arrow, The Sopranos, Game of Thrones, The Shield, The Teen Titans, The Doom Patrol, The Suicide Squad, classic Warner Bros movies (such as Dirty Harry), Peacemaker, The Watchmen, The Wire, the Looney Tunes, and Scooby Doo.
Warners’ use of most of those properties has been poor. For example, they hired James Gunn to rebuild the DC Cinematic Universe after various Hollywood geniuses wrecked it. Moreover, Warners’ use of properties such as Scooby Doo, The Sopranos, The Wire, and The Shield has been poor. They haven’t built new shows or films on some established brands and done a poor job of promoting Scooby Doo projects.
There are many interesting DC superheroes and characters, Warner Bros has not used. For example, The Legion of Superheroes, The Blackhawks, Checkmate, The Justice Society, The Question, The Huntress, The Manhunter, The Outsiders, The Arrowverse, Starman, The Authority, WildCATS, Static Shock, and Captain Atom. Significantly, one of James Gunn’s superpowers is turning third-rate superheroes into successful movies and TV shows. Peacemaker and the Guardians of the Galaxy, for example.
Warner Bros Discovery (WBD) claims Max will offer “40 new titles and seasons each month.” A press release promises that a Harry Potter series, a Big Bang Theory spinoff, a Game of Thrones prequel, a Conjuring spinoff, Fixer Upper: The Hotel, Survive the Raft, Bono’s Peter & the Wolf, Rick and Morty: The Anime, and Tiny Toons Looniversity will be Max exclusives.
Can Max and AEW Save Warner Bros Discovery?
Moreover, wrestling dirtsheets claim Warner Bros Discovery is about to sign a giant TV deal with Tony Khan’s All-Elite Wrestling (AEW). AEW is America’s second largest professional wrestling promotion with shows on TNT and TBS.
Significantly, AEW’s card includes some of the hottest rising wrestling stars including MJF, Dr. Britt Baker DMD, Jamie Hayter, Thunderosa, Darby Allin, Adam Cole, Sammy Gueverra, Jungle Boy, Switchblade Jay White, The Acclaimed, The Lucha Brothers, The FTR, Wardlow, Bandito, Orange Cassidy, and Abosolute Ricky Starks. Khan has signed some of the biggest names in wrestling, including Chris Jericho, John Moxley, Kenny Omega, Bryan Danielson, The Hardy Boyz, The Young Bucks, Sting, and CM Punk.
WBD could pay $1 billion for all of AEW’s TV programming including Dynamite and Rampage, The Sportser speculates. Sportser speculates Warner Bros will pay $1 billion for all AEW television for five years. Presumably, the deal includes AEW’s planned Collision show which will premier on TNT on 17 June 2023.
However, the AEW stories do not mention Max. Interestingly, Khan has canceled his two AEW-branded YouTube shows Dark and Dark Elevation. Conversely, another AEW streaming show, Ring of Honor, is still running with many Dark stars.
Khan could announce a Max exclusive on the May 17 episode of Dynamite night. AEW is hyping a “big announcement from Tony Khan” scheduled for that day.
I think AEW could make its pay-per-views a Max exclusive. Notably, AEW’s biggest rival, World Wrestling Entertainment, has an exclusive pay-per-view deal with Comcast’s Peacock. WWE pay-per-views only stream on Peacock in the United States.
AEW’s pay-per-views are popular. Wrestling Observer claims AEW has sold 65,584 tickets to its August All-In pay-per-view at London’s Wembley Stadium. Importantly, journalists speculate All-In will be part of WBD’s celebrations of Warner Bros 100th anniversary. I think All-In will be a Max exclusive.
Can a FAST save WarnerBros Discovery (WBD)?
Current Max plans feature three pricing options. Viewers can chose from a Max-Ad-Lite for $9.99 a month or $99.99 a year, Max-Ad Free for $15.99 or $149.99 a year, and Max Ultimate Ad Free for $19.99 a month or $199.99 a year.
Max Ad-Lite offers two concurrent streams, 1080p resolution, no downloads, and 5.1 surround sound quality. Max Ad Free adds 30 downloads. Max Ultimate Ad Free adds 4K UHD resolution, 100 downloads, and Dolby Atmos sound quality. They will switch existing HBO Max subscribers to Max.
I think Max will be a tough sale because it doesn’t seem much better than competing streamers.
Notably, free ad supported television (FAST) services such as Pluto TV and FreeVee offer hundreds of programs for free. They claim the number one FAST, Paramount’s Pluto TV had 80 million monthly active users in the first quarter of 2023.
Warner Bros Discovery plans a FAST but is not in a hurry to launch it, JB Perrette says. Perette is Discovery’s CEO and WBD’s president for global streaming and games.
I think Warner Bros Discovery is making a terrible mistake by not rolling out a FAST now. I think a FAST with old Warner Bros movies, Cartoon Network animation, the Arrowverse and other DC superheroes, Discovery reality shows, CNN news, and AEW wrestling could make money. My prediction is that Max Ad Free Lite will fail and become a FAST at some point.
Warner Brothers Discovery (WBD) is losing money
Warner Bros Discovery (WBD) needs Max to work because it is losing money.
For example, WBD has suffered four quarters of operating losses. The quarterly operating loss fell from -$3.639 billion on 30 June 2022 to -$557 million on 31 March 2023. There were -$1.894 billion and -$2.190 billion quarterly operating losses on 31 December 2022 and 30 September 2022.
In contrast, WarnerBros’ quarterly gross profit grew from $1.923 billion on 31 March 2022 to $4.015 billion on 31 March 2023. The quarterly gross profit grew because of last years’ Warner Bros’ Discovery merger.
Similarly, the quarterly revenues grew from $3.159 billion on 31 March 2022 to $9.827 billion on 30 June 2022 to $10.7 billion on 31 March 2023. However, the quarterly revenues fell from $11.008 billion on 31 December 2022.
Interestingly, Stockrow credits WarnerBros Discovery with a 238.71% quarterly revenue growth rate on 31 March 2023. That was the fourth straight quarter of over 200% revenue growth. For example, WBD’s revenues grew by 220.93% in the quarter ending on 30 June 2022, 211.84% in the quarter ending on 30 September 2022, and 245.40% in the quarter ending on 31 December 2022.
How Much Cash is WarnerBros Generating?
One attraction of streaming services is that they can generate cash from subscriptions. WarnerBros Discovery needs subscription cash because it reported a quarterly operating cash flow of -$631 million on 31 March 2023.
However, WBD can generate enormous amounts of cash. It reported a $2.846 billion quarterly operating cash flow on 31 December 2022. There was also a $2.639 billion quarterly ending cash flow on 31 March 2022.
WarnerBros Discovery’s cash and short-term investments fell from $4.162 billion on 31 March 2022 to $2.594 billion on 31 March 2023. Hence, WarnerBros Discovery has less cash.
Predictably, WarnerBros Discovery’s debts exploded because of the merger. The Total Debt grew from $14.399 billion on 31 March 2022 to $48.930 billion on 31 March 2023. WarnerBros Discovery has far more debt and less cash, which explains the “content purge.”
Warner Bros Loses Value
Warner Bros Discovery (WBD) has lost value. Its Total Assets fell from $142.240 billion on 30 June 2022 to $130.584 billion on 31 March 2023.
Conversely, WBD’s stock is cheap. Its share price fell from $17.21 on 16 May 2022 to $12.51 on 17 May 2023. Hence, value investors will wonder if WBD is a cheap alternative to Disney (DIS) and Netflix (NFLX). I think WarnerBros is a cheap alternative because of Max’s potential to attract a massive audience with popular content.
However, Paramount (PARA) could be an even better value because it will pay seven 7.7₵ quarterly dividends between 14 July 2023 and 14 March 2025. Notably, Mr. Market was paying $15.57 for Paramount Global Class B shares on 17 May 2023.
I consider Warner Bros a value bargain. However, I think only those who can afford to lose money should consider WDB. You need to be leery of WarnerBros Discovery because I think it will suffer big losses until Max succeeds.