Warner Bros. Sales Fall Short on Movie Miss, Poor Ad Sales

Christopher Palmeri and Jason Schreier, Bloomberg News

Signage at a Warner Bros Discovery office in New York, US, on Saturday, Feb. 17, 2024. Warner Bros Discovery Inc. is scheduled to release earnings figures on February 23. Photographer: Yuki Iwamura/Bloomberg , Bloomberg

(Bloomberg) -- Warner Bros. Discovery Inc. reported sales and profit that fell short of analysts’ expectations as the entertainment giant wrestled with lower TV ad sales and poor performance of video games.

The parent of CNN, TNT and other cable networks generated sales of $9.96 billion in the first quarter, compared with the $10.3 billion average of projections on Wall Street and down 7% from a year earlier. Adjusted earnings of $2.1 billion before interest, taxes, depreciation and amortization also fell below the market’s projections for $2.18 billion and were down 20% from last year.

The shares fell 1.3% to $7.70 as trading got underway in New York.

The earnings miss was due in part to the poor performance of the video game Suicide Squad: Kill the Justice League, which generated significantly lower revenue in the quarter, the company said in a statement on Thursday.

Sales at Warner Bros. studios fell 12% to $2.82 billion, the result of strikes that halted production last year and the comparatively weaker performance of the new Suicide Squad video game. Last year’s first quarter included strong numbers for Hogwarts Legacy, a Harry Potter-themed game.

Chief Executive Officer David Zaslav has ordered his lieutenants to find additional opportunities for cost-cutting in order to hit financial targets for the next couple years, Bloomberg has reported. That could include more layoffs at the company, which has eliminated more than 2,000 positions over the past year, according to people with knowledge of the matter.

On a call with analysts to discuss the results on Thursday, Zaslav said he believed “we will see both strategic and financial progress in the quarters ahead.” He wouldn’t give details about ongoing negotiations with the National Basketball Association, but announced a new film in the Lord of the Rings franchise to be released in 2026.

Zaslav spoke positively of streaming packages with other companies, saying that Warner Bros. needed to be “prominent in all of the major bundles” moving forward.

Warner Bros. and Walt Disney Co. are planning to sell their streaming services — Disney+, Hulu and Max — together in one bundle starting this summer. An ad-free bundle of Disney+ and Hulu costs $20 a month presently, while ad-free Max is $16. The company, the home of HBO and the Warner Bros. studios, has also decided to raise subscription prices as it seeks to reach $1 billion in earnings from the Max and Discovery+ streaming services next year.

Ad sales at Warner Bros.’ TV networks, the company’s largest business, fell 11% to $1.99 billion, driven by audience declines in domestic entertainment and news networks.

The streaming business, which includes the Max and Discovery+ services, reported earnings before interest, taxes, depreciation and amortization of $86 million, up 72% from a year earlier. Total subscribers, at 99.6 million, beat the 98.9 million average of analysts’ forecasts. Advertising in that segment rose.

(Updates with CEO comments in sixth paragraph.)