The streaming industry is becoming increasingly competitive as large entertainment companies vie for market share. In the middle of all of this, Warner Bros. Discovery Inc. (WBD, Financial) presents a unique opportunity.
The New York-based media conglomerate reported its direct-to-consumer video streaming services, which include HBO, HBO Max and Discovery+, had amassed nearly 95 million subscribers by the end of the third quarter of 2022. With a catalog of content only few possess, the company has an impressive library of intellectual property and assets, including DC Comics, Warner Bros. movies and linear TV channels such as CNN, TBS and TNT Cartoon Network, along with the rights to broadcast NBA games.
However, Warner Bros. Discovery's debt load is a major concern for its financial security. Given the increase in interest rates throughout the last year, the company may have to refinance and face higher interest charges. This could be an expensive outcome for the company, so implementing strategies to generate free cash flow should be prioritized as it is essential to managing debt and keeping the company afloat.
It has become evident in recent weeks that the company is serious about managing its resources efficiently, paying off its debt and enhancing its product lineup. This makes the stock a viable play in the streaming space.
Warner Bros. Discovery secures European rights to broadcast Olympic Games
On Jan. 17, Warner Bros. Discovery announced it had won the media rights, in collaboration with European Broadcasting Union, to broadcast in Europe the four games that will be held from 2026 to 2032. The announcement, made by the International Olympic Committee, applies to the Milan and Cortina 2026 Winter Olympics, the 2028 Los Angeles Summer Games, the 2030 Winter Games and the 2032 Brisbane Olympics that the two bodies will broadcast across 49 regions.
The company's predecessor, Discovery Communications, struck a deal to air the Olympics in Europe from 2018 to 2024 through its various streaming and digital platforms. The deal is financially attractive and allows the company to continue its streak of airing the games in collaboration with EBU members.
Warner Bros. Discovery looking to chip away at debt pile
The music division of Warner Bros. was sold off back in 2004, but the company held on to several valuable records, like the theme song for the Batman series. After WarnerMedia and Discovery's merger, the company has been cutting costs to reduce its debt. As part of this initiative, on Jan. 12, The Financial Times reported Warner Bros. Discovery is looking to sell its music library, which is worth approximately $1 billion.
The company has also been exploring other options to make a dent in its humongous debt pile.
Recently, Warner Bros. Discovery announced it is raising the monthly fees for its ad-free package of HBO Max. The change will be incorporated in the subscribers' next billing cycle, showing a price of $15.99 instead of $14.99, almost a 7% raise. The company hopes the increased prices will help revenue grow as it had 95 million subscribers at the end of September 2022 across its HBO, HBO Max and Discovery+ platforms.
Company furthers its global presence through deals with Amazon and Paramount
Warner Bros. Discovery has a huge global presence; out of the total 95 million subscribers mentioned above, 2.8 million were new global subscribers. It plans to extend its reach even further through partnerships with other streaming services.
On Jan. 12, the company announced the launch of "Warner Pass," a streaming partnership with Amazon (AMZN, Financial) in France. Through the pass, Prime Video subscribers will have access to a bundle that will include HBO, Warner TV, TCM Cinema, Eurosport, Discovery Channel, Cartoon Network and CNN.
In addition, following HBO Max's discontinuation of producing European Originals, an acquisition deal was struck between HBO Max and Paramount's (PARA, Financial) SkyShowtime. The deal gave SkyShowtime full rights to 21 new European Originals from HBO Max. Furthermore, a few previously aired shows on HBO Max will also find a new home over at SkyShowtime.
The upcoming launch of two merged streaming services reinvigorates analyst and investor sentiment
To streamline costs and generate growth in net income, Warner Bros. Discovery will be combining Discovery+ and HBO Max into a single streaming platform, which will launch in the spring. The platform will target all genders, viewer preferences and age groups, as it will have content from Discovery, CNN, Warner Bros. and more.
This development appears to have been well received as Guggenheim Securities analyst Michael Morris gave a cheery outlook for the company in 2023. On Jan. 11, he lauded the company's efforts to cut costs and highlighted the upcoming launch of the merged streaming service as one of the catalysts for the stock.
Morris was not the only one who considered the stock a buy; analysts at Bank of America (BAC, Financial) also appear to have high hopes for the company in 2023 as it was added to the Bank of America's "U.S. 1 List" of best investment ideas.
Takeaway
The 2022 merger was messy and costly for Warner Bros. Discovery. Now that the restructuring plan has mostly been complete, 2023 is slated to be a year of growth for the company. The management team has cut down on unnecessary expenses and set its focus on forming deals and pushing sales that will benefit it in the long term.
