While other factors will come into play, the advertising market could be the major determinant in whether Warner Bros. Discovery Inc. meets a key financial guidepost in 2023.
The media conglomerate has projected $12 billion in adjusted EBITDA this year, but Warner Bros. Discovery Executive Vice President and CFO Gunnar Wiedenfels said the ad market environment “clearly is the No. 1 swing factor, positive and negative” in the company reaching that number.
Speaking at an investor conference on Jan. 5, Wiedenfels said the company has been clear since last summer that the ad market is feeling the strain of geopolitical and macroeconomic pressures.
Warner Bros. Discovery reported third-quarter 2022 advertising revenue of $2.04 billion, a 10% decline year over year on a pro forma basis and excluding the impact of foreign currency exchange rates. Discovery Inc. and Warner Media LLC completed their merger in April 2022.
Wiedenfels did express some domestic optimism as the company is “seeing some small green shoots” in the first quarter before adding that he “wouldn’t want to call the turn here yet.”
Internationally, advertising is more of a mixed bag, with markets like the U.K. and Germany “equally negative,” he said. Meanwhile, Poland, Italy and a wide swath of the company’s Latin America footprint are performing “fairly well.”
When the ad market bounces back, the CFO said Warner Bros. Discovery will participate “disproportionately,” owing to the reach of its properties and the ability to optimize content spend across its broad network portfolio.
Wiedenfels said the company is still playing catch-up as it seeks higher pricing for its cable holdings versus higher incumbent rates for broadcast. The company has been able to chip away against this discrepancy via its Premiere offering. This package allows media buyers to lock in the first positions in ad breaks during debut episodes of some of its top cable shows as a more cost-efficient alternative to broadcast prime-time audiences.
Asked about a “normal” recession’s impact on financial forecasting, Wiedenfels retorted: “Well, what is a normal recession?”
Advertising uncertainty aside, he said the company is still working through various scenarios and has not yet finalized a budget.
Warner Bros. Discovery has raised the savings projection for its long-term merger-synergy target from $3 billion to $3.5 billion, and Wiedenfels said the company continues to add ideas to that funnel.
The executive also anticipates significant profitability improvement from its direct-to-consumer business, even as it makes investments to reset its technology backbone. After initially signaling a summer 2023 debut, the company plans to integrate its HBO Max and Discovery+ products into a unified offering in the U.S. sometime this spring.
Wiedenfels did not offer updates on the product name or its launch date but hinted the unified product will cost consumers more.
“We will, with the combined product, bring something to the market that I have no doubt is going to be the best streaming product in the marketplace. We’re not priced at that level right now in the U.S., more so internationally,” he said.
Last month, Warner Bros. Discovery revised its estimate for pretax charges related to restructuring and transformation initiatives through 2024 to a range of $4.1 billion to $5.3 billion. That was up from previous guidance of $3.2 billion to $4.3 billion.
The new forecast includes $2.8 billion to $3.5 billion of content impairment and development write-offs, compared with a prior estimate of $2.0 billion to $2.5 billion.