Warner Bros. Discovery is entering a new era in 2023, with this 12-month period set on “relaunching and building” compared to 2022’s “restructuring” focus on layoffs and content write-offs, following the April acquisition of WarnerMedia, according to CFO Gunnar Wiedenfels.
“We took a little bit of time to make sure that we do it properly. For some of the titles, we’ve found new homes elsewhere. That’s why this took six or seven months. But I think we’ve come to great solutions and, most importantly, we’re done with that chapter,” Wiedenfels said while speaking at Citi’s 2023 Communications, Media & Entertainment Conference Thursday. “That was very important to all of us, to really use 2022 to leave the purchase accounting behind us, leave those initial strategy changes behind us, get it all out there in terms of our restructuring estimates and then be able to turn the page forward. I think the team has laid a great foundation and I’m really excited about the growth from here.”
Though WBD’s 2022 cuts were significant, including the much-criticized decision to scrap HBO Max’s completed “Batgirl” film, as the David Zaslav-led company looks to fulfill its $3.5 billion target in post-merger cost savings over three years, Wiedenfels says they are, in part, a “reflection of an industry that went overboard” in content overspend throughout a streaming-crazed Hollywood. “We’re coming from an irrational time of overspending with limited focus on return on investment,” Wiedenfels said.
On Dec. 14, Warner Bros. Discovery updated its estimate on restructuring charges related to Discovery’s acquisition of WarnerMedia, and said content impairment and development write-off charges could be up to $3.5 billion — $1 billion more than it previously pegged. WBD said it “revised certain estimates related to its restructuring and transformation initiatives” that it previously disclosed in October. The company expects to incur total pre-tax restructuring charges of $4.1 billion – $5.3 billion, up from $3.2 billion to $4.3 billion previously. The new estimate includes $2.8 billion – $3.5 billion of content impairment and development write-offs.
In that December SEC filing, Warner Bros. Discovery said it is not revising the previously disclosed estimates for organization restructuring costs, facility consolidation activities and other contract-termination costs or cash expenditures. That said, the company noted that “restructuring efforts are ongoing and could result in additional impairments above the revised estimates,” and that restructuring initiatives are still expected to be “substantially completed” by the end of 2024.
“From my perspective, we really have command and control over the business now,” Wiedenfels told Citi’s Jason Bazinet Thursday. “There were some surprises in the first months of the combination, as you know, but we put out the guidance for this year at the end of the summer and I’ve been very, very pleased with all of our operating trends over the second half of the year… We’re really on track for a lot of asset value creation and free cashflow generation.”
One of the upcoming bright spots in Warner Bros. Discovery’s year of “relaunching and building” is the of the combined HBO Max-Discovery+ product this spring. Wiedenfels said the company has been putting a great emphasis on raising the bar of that offering, which has yet to be named or given a debut date, compared to the solo HBO Max and Discovery+, in order to reduce churn as much as possible when the unified platform launches.
“We’re going to come out with a great product from a consumer-experience perspective, and that’s, frankly, the biggest holdback for HBO Max right now. The experience is not where it needs to be,” Wiedenfels said.