Warner Bros Discovery posts wider Q1 loss driven by Netflix termination fee

Warner Bros Discovery Inc (NASDAQ:WBD, XETRA:J5A) reported a wider-than-expected first quarter loss as a $2.8 billion termination fee tied to Netflix weighed heavily on results, while revenue came in slightly below analyst expectations.

The media and entertainment company posted a net loss of $1.17 per share for the quarter, significantly wider than analysts’ expectations for a loss of $0.11 per share. Revenue totaled $8.89 billion, compared with consensus estimates of $8.9 billion.

Warner Bros Discovery said the quarter’s results were impacted by the $2.8 billion termination fee paid to Netflix Inc (NASDAQ:NFLX, XETRA:NFC) in connection with a merger agreement, as well as ongoing restructuring and acquisition-related costs.

The company reported a net loss attributable to Warner Bros. Discovery of $2.9 billion during the quarter. That figure included $1.3 billion in pre-tax acquisition-related amortization, content fair value step-up expenses, and restructuring charges, in addition to the Netflix-related payment.

According to the company, Paramount Skydance Corp (NASDAQ:PSKY) paid the $2.8 billion fee to Netflix on WBD’s behalf under the terms of the merger agreement. Warner Bros Discovery noted that the amount could become refundable to Paramount Skydance under certain circumstances, including if the merger agreement is terminated for a superior proposal or due to violations of interim operating covenants.

Distribution revenue was relatively unchanged year over year, as gains in global streaming subscribers were offset by continued declines in domestic linear pay TV subscribers and the impact of a previously disclosed HBO Max domestic distribution deal renewal.

Advertising revenue fell 8% on an ex-foreign exchange basis, reflecting the absence of NBA programming and continued declines in domestic linear television audiences. The company said the lack of NBA content reduced year-over-year advertising growth by roughly 7 percentage points.

Content revenue was largely flat from a year earlier, as higher intercompany content revenue within the Studios segment was offset by increased intercompany eliminations.

Adjusted EBITDA totaled $2.2 billion, relatively unchanged on an ex-foreign exchange basis compared with the prior-year quarter. Growth in the streaming and studios businesses was offset by weaker performance in the Global Linear Networks segment.

Shares of Warner Bros Discovery were little changed following the report at $27, down almost 6% so far this year.