Revenue from licensing HBO content buoyed Warner Bros. Discovery’s streaming business in the second quarter, the company revealed in its earnings report Thursday. The sales helped significantly narrow its loss and appeared to be playing a big part in the company’s promise for its U.S. direct-t0-consumer business to turn a profit in 2023.
The media giant reported $2.73 billion in revenue in its DTC segment, which launched its Max service during the quarter. That was a 37% leap from last year’s second quarter, and represented about 26% of the company’s total revenue for the period. The segment swung to a $3 million EBITDA loss for the second quarter after reporting $50 million in positive EBITDA in the first quarter.
Content licensing revenue at $410 million revenue rose notably, more than tripling the $132 million reported in the same quarter last year, suggesting that the company would have had a far more significant loss without those fees.
The growth in licensing reflects a surprising move in recent months toward offering HBO shows like “Westworld” to free, ad-supported streaming TV services like Amazon’s Freevee and the Roku Channel. Warner Bros. Discovery also licensed HBO shows including “Insecure” to Netflix.
CEO David Zaslav said on a call with analysts Thursday that it would seek to do deals on a “co-exclusive” basis, meaning the licensed shows would also be available to Max subscribers.
Distribution revenue of $2.19 billion made up the bulk of the division’s total, including traditional HBO subscriptions, Max and HBO Max subscriptions, and Amazon Prime Video Channels revenue. Advertising revenue jumped 26% to $121 million, also mainly driven by subscriber growth. Total DTC subscribers fell by 1.8 million in the quarter to 95.8 million.
Zaslav told analysts the company’s deep content library “offers a wealth of opportunity in terms of feeding our own platforms, as well as others.”
“It’s a mainstay of our business to create great content and window width, through creating value in each window,” he said. “And as you would expect a lot of analysis and strategic discussion goes into these decisions. In some cases, we’ll want to keep premium content exclusively on our platform for a very long time. In other cases, we may sell it to third parties, and we don’t lose anything by growing the pie.”
“The fact is licensing some library content to others VOD platforms like Netflix or Amazon as part of a co-exclusive agreement is just smart business,” Zaslav said. “We’re expanding our audience, while maximizing the value of the asset and providing more revenue streams. And that is our job, to optimize the windowing to get the best possible return on investment.”
Warner Bros Discovery also inked deals with Roku and Tubi to license 2,000 hours of content and launch a series of channels in January. It also plans to introduce its own FAST service this year.
Later in the call, the CEO noted that if the Hollywood strikes continue, “there may be more demand” for WBD content.