Warner Bros. Discovery reported a loss of $148 million in the third quarter, hitting a sour note as the company began to attract interest from potential buyers as Hollywood prepares for a transformative deal.
Earnings at the entertainment company, which includes HBO, CNN and film and television studio Warner Bros., fell short of analysts' expectations. A year ago, the company reported profits of $135 million for the third quarter.
Revenue of $9.05 billion was down 6% from the year-ago period. The company reported a loss of 6 cents per share, compared with last year's profit of 5 cents per share.
However, CEO David Zaslav spent much of his call with analysts on Thursday touting his company's core strengths while avoiding details about the company's sale.
“It’s fair to say we have an active process,” Zaslav said.
Warner Bros. Discovery on Thursday confirmed it is moving forward with previously announced plans to split into two separate companies by next spring. However, Warner's board admitted last month that it also had interesting proposals for the whole company – or parts of it – after David Ellison's Paramount expressed its interest with formal proposals.
Paramount made three offers, including $58 billion in cash and stock for the entire Warner Bros. company. Discovery. The offering will net Warner shareholders $23.50 per share.
Allison's family seems determined to win one of Hollywood's most storied entertainment companies has merged with Paramount, which the Ellisons and RedBird Capital Partners acquired in August.
But the board of Warner Bros. Discovery, including Zaslav, voted unanimously to reject Paramount's bids and instead opened the auction to other bidders, which is expected to see the firm change hands for the third time in a decade.
Board members are betting that a company that has shown signs of improvement is worth more than the offers on the table. Despite disappointing third-quarter results, Warner shares held their position in morning trading at around $22.60 per share.
“Overall we are optimistic,” Zaslav said about the company’s business prospects.
“When you look at our films like 'Superman,' 'Guns' and 'One Battle at a Time,' the global reach of HBO Max and the diversity of our network's offerings, we've been able to carry over the best, most treasured traditions of Warner Bros. into a new era of entertainment and entertainment. [a] new media landscape,” he said.
However, the company's results underscored its business objectives.
The studio saw a significant decline in third-quarter advertising revenue of $1.41 billion, down 16% from the prior year, which management attributed to declining audiences across its domestic linear channels, including CNN, TNT and TLC.
Distribution revenue also took a hit, with the company reporting sales of $4.7 billion, down 4% from last year.
The studio's revenue rose 24% to $3.3 billion thanks to the success of DC Studios' “Superman,” the horror film “Gun” and the latest installment of “The Conjuring.” But even those box office numbers couldn't fully compensate for shortcomings in other areas of the content business.
Last year, the company was able to sublicense its rights to broadcast the Olympic Games in Europe, bringing content revenue to $2.72 billion. But this year, revenue fell 3% to $2.65 billion.
Burbank-based Warner Bros. has had a string of theatrical successes, with nine films reaching No. 1 at the worldwide box office. The studio's worldwide box office revenue recently surpassed $4 billion, making it the first studio to do so this year. The last time Warner Bros. reached this milestone in 2019.
Zaslav would like to continue with plans to break up Warner, which were announced last June.
The move will allow him to continue running a small, Hollywood-focused organization that includes Warner Bros. studios, HBO, the streaming service HBO Max and the company's vast library, which includes the Harry Potter films and award-winning TV shows such as “Pitt.”
The company's large portfolio of cable channels, including HGTV, Food Network and Cartoon Network, will become Discovery Global and operate independently.
In addition to Paramount, Philadelphia-based Comcast, Netflix and Amazon have expressed interest in considering buying parts of the company.
The company said its third-quarter loss of $148 million was the result of $1.3 billion in charges, including restructuring costs.
