Warner Bros Discovery warns of more cost-cutting as revenues slide

Warner Bros Discovery warned of “difficult decisions” and deeper cost-cutting ahead due to the challenging economic environment, as the owner of HBO reported sliding revenue and billions of dollars in restructuring charges during a “messy” integration of its sprawling Hollywood empire.

“We are fundamentally reimagining how this organisation is structured,” chief executive David Zaslav told investors on Thursday. He vowed the company would find $3.5bn in cost savings over the next two years, above his previous $3bn goal after the $40bn merger of Warner with Discovery in April.

“Amid a more challenging economic environment, a significant amount of change is required,” he added. “It’s messy, it’s challenging, it’s taken real courage to restructure this company.”

Since taking the helm of the newly combined Warner Bros Discovery in April, Zaslav has tried to be more disciplined with budgets following an era of extravagant spending for Hollywood, which had been boosted by years of ultra-low interest rates and a stock market rally.

Now, interest rates are higher, the market has turned, and Zaslav has denounced the “streaming wars” started by Netflix as a money pit.

“Chasing [subscribers] at any cost is over . . . spending money with abandon while making a fraction in return has ultimately proven, in our view, to be deeply flawed,” Zaslav said.

The company on Thursday reported a net loss of $2.3bn in the quarter ending in September as underlying revenue fell 8 per cent from a year ago to $9.8bn. Analysts had forecast revenue of $10.4bn. 

Advertising revenue across Warner’s television channels — which include CNN and HGTV — fell 11 per cent from a year ago to $1.9bn.

Shares in Warner Bros Discovery have fallen by more than half this year, taking its market capitalisation to less than $30bn. The company has gross debt of $50bn. Shares fell by more than 5 per cent in after-hours trading on Thursday.

The success of House of the Dragon, HBO’s widely watched prequel to Game of Thrones, was not enough to offset the grim financial results. Warner said it added 2.8mn streaming subscribers in the quarter, meeting analyst forecasts. Some 29mn American viewers have been watching House of the Dragon, which was HBO’s largest series premiere ever, the company said.

Since taking over one of Hollywood’s most storied companies, Zaslav’s team has axed prominent projects such as the CNN Plus streaming service, JJ Abrams’s HBO series Demimonde and the movie Batgirl during the final stages of its production.

Warner last week warned that the costs of these programming decisions — which have shocked some in Hollywood — could total up to $2.5bn in charges through 2024. The company expects a total of $4.3bn in restructuring costs, highlighting the integration challenges facing the media group.

Insider Intelligence analyst Max Willens said the financial results “show that no media or content provider is safe from the current economic climate”.