The weakness and unpredictability of the advertising market is one more issue Warner Bros. Discovery has to deal with.
In the third quarter, Warner Bros. Discovery’s revenues were below expectations, and a 14% drop in ad sales to $1.9 billion at the company’s cable networks didn’t help at a time when the company is looking to repay billions of dollars in debt.
Looking ahead, Warner Bros. Discovery warns that while the company is optimistic, the ad market will remain hard to predict.
“The reality is those trends continue into the fourth quarter and I don't want to give any more specific guidance for next year,” Warner Bros. Discovery chief financial officer Gunnar Wiedenfels said on the company’s third-quarter earnings call Thursday.
“We have been quite transparent about the risk in the environment since the summer,“ Wiedenfels said. “Obviously, this is something impacting all players across not only the advertising industry, but the broader economy, which has more or less continued thus far into the fourth quarter.”
With a more normal ad environment, Warner Bros. Discovery would expect to generate $12 billion in annual ad revenue, but it’s “certainly not in position to put that into the bank here today,” Wiedenfels said.
Evercore ISI media analyst Vijay Jayant said WBD was more affected by the macroeconomic trends and weak ad market than other media companies.
“We estimate WBD’s organic linear advertising declined 7-8% in Q3,” Jayant said in a research note Friday. “This was worse than others in the industry given WBD’s large international presence, no local stations to benefit from political and no major sports exposure during the quarter. Consistent with our expectations for other media companies, we believe trends will get worse in Q4 and in the first half of 2023.”
WBD CEO David Zaslav said ad sales were at the low end of expectations because of the macroeconomic factors affecting most of the industry and a dry scatter market, but also because, unlike most of the other major media companies, it doesn’t have football — NFL and college — and its competitors do.
Warner Bros. Discovery Sports did have Major League Baseball playoffs in October, but with the Houston Astros sweeping opponents, revenue opportunities were limited so, despite ratings growth, “a shortened championship series wasn’t ideal,” Zaslav said.
Looking ahead, WBD has the National Basketball Association, college basketball’s March Madness and the National Hockey League, including the Stanley Cup Final.
“From now through the summer, we have a large share of professional sports, both here in the U.S. and internationally,” he said.
Zaslav said that WBD had a great upfront. “We outperformed the market,” he said. The company also reorganized its ad-sales team, bringing sports and news together with entertainment and nonfiction in one unit.
“So the team is now in place, attacking the market with a full suite of tools, every way a brand wants to engage with consumers, whether through traditional commercials, product placement or dynamic targeting, we will offer those touch points. “
Despite the down quarter, Zaslav praised WBD’s head of U.S. ad sales — “the superb Jon Steinlauf” — who, he noted, “has a great track record of outperforming the market.”
The 14% drop in advertising revenue, along with a 5% decline in distribution revenue, left WBD’s networks segment (mostly its traditional cable networks) with revenue of $5.214 billion, down 11% from last year on a pro-forma basis.
The network segment’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 3% to $2.63 million.
Advertising revenue at the company’s direct-to-consumer segment nearly doubled to $106 million, but that was just a drop in the bucket as the company’s streaming business lost $634 million on revenue of $2.317 billion. ■
