Warner Bros. Discovery earnings call: Earlier streaming debut, ongoing pivot (NASDAQ:WBD)

Warner Bros. Discovery (NASDAQ:WBD) chief David Zaslav held forth at length about the company’s big moves on content, after a third-quarter report that showed sea changes at the recently merged company were still well under way.

If the company’s print last quarter was a “kitchen-sink report” that looked to consolidate bad-news moves after the April merger of Discovery with WarnerMedia, the new report looked like a bit more of the same, with a sharp miss on revenue and profits and a number of year-over-year declines on a comparative basis.

Notably among the positives, the company boosted its cost-cutting synergies target to $3.5B from a previous $3B. Combined with comments from Chief Financial Officer Gunnar Wiedenfels – that WBD would emerge from the storm as a “leaner and stronger global media company” – that seemed to point the way to more substantial layoffs ahead. And 2022 will clearly be a “transition year,” Wiedenfels said.

Zaslav said it shouldn’t be surprising that “A significant amount of change is required … In fact, we see this as presenting a meaningful opportunity – one that we have seized wholeheartedly.”

“This is an opportunity to look inside each one of our businesses and really determine what’s working, what’s not working, is it structured properly?” Zaslav said. “Does it have the right assets, people and resources to be effective and the best of class in the environment we face today?”

“None of this is easy, and nothing happens overnight,” he said. “That said, we are fully committed and laser focused.”

Content is the heart of the company, and WBD is “investing at historic levels in the highest quality storytelling, sports, and news.”

Asked about a content strategy at WarnerMedia that was a “little bit broken” before, Zaslav was firm about lessons learned for future content approaches at the company.

“One, we’re going to have a real focus on franchises,” he said. “We haven’t had a Superman movie in 13 years. We haven’t done a Harry Potter movie in 15 years. The DC movies and the Harry Potter movies provided a lot of the profits of Warner Bros. motion pictures over the last 25 years. So focus on the franchise.”

“House of the Dragon is an example of that; Game of Thrones; taking advantage of Sex and the City. Lord of the Rings; we still have the right to do Lord of the Rings movies. What are the movies that have brands that are understood and loved everywhere in the world?

“Two, we’ve learned what doesn’t work … One is direct-to-streaming movies,” he said, indirectly referencing the shock decision to give a late scrub to a $90M Batgirl film.

“The movies that we launch in the theater do significantly better … launching a two hour, an hour and 40 minute movie direct to streaming has done almost nothing for HBO Max in terms of viewership, retention, or love of the service.”

As for the company moving to make some heavy content cuts on streaming: “The entire library or almost the entire library shouldn’t be on HBO Max, and paid for by HBO Max,” Zaslav said. There are 15 or 20 series that are loved and “nourishing” the audience on a regular basis, and a “huge number of series and movies that aren’t be used at all.”

Some of those series fit better on a free ad-supported offering, he noted. “We’ve looked at what people are watching on Pluto and on Tubi and it’s very different. They’re loving Rawhide and Bonanza … They’re not watching old series like Dynasty on Max.”

After some modest declines earlier in postmarket trading, WBD stock (WBD) fell 4.2% after the call.

Early in the call, Zaslav also made news when he said the planned combination of HBO Max and Discovery+ into a single overarching streaming service will now come earlier than expected, in spring 2023 rather than the summer.