Variety: Warner Bros. Discovery Says Content Write-Offs Could Be Up to $3.5 Billion, $1 Billion Over Previous Estimate

Story from Variety:

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.

The media company made the disclosure in an SEC filing Wednesday. Warner Bros. Discovery said it “revised certain estimates related to its restructuring and transformation initiatives” that it previously disclosed in October. The company said it now 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. 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.” Warner Bros. Discovery said its restructuring initiatives are still expected to be “substantially completed” by the end of 2024.

Since the deal closed earlier this year, Warner Bros. Discovery has been looking to cut costs. That has included several rounds layoffs at the combined company. The company also has made a series of content cutbacks aimed at reducing expenses, including shelving Warner Bros.’s “Batgirl” and most recently canceling HBO Max original series “Minx” (reversing its Season 2 renewal) and axing HBO’s “The Nevers.”

Separately Wednesday, the company announced plans to license certain content that has been on HBO Max — including “Westworld,” “The Nevers,” “Raised by Wolves,” “FBoy Island,” “Legendary,” “Finding Magic Mike,” “Head of the Class” and “The Time Traveler’s Wife” — to third-party free, ad-supported streaming TV (FAST) partners. Each title will leave HBO Max in the next few days as Warner Bros. Discovery prepares to shift them into third-party distribution deals.

In reporting Q3 earnings last month, Warner Bros. Discovery CEO David Zaslav said the company is targeting $3.5 billion in cost savings over three years through the Discovery-WarnerMedia merger, up from $3 billion previously.

The company reported Q3 revenue of $9.82 billion, down 8% year-over-year, and a net loss of $2.3 billion, which included $1.92 billion of amortization from acquisition-related intangible assets and $1.52 billion in restructuring charges including content impairments and write-offs.

Warner Bros. Discovery is aiming to launch a combined HBO Max/Discovery+ streaming service in the U.S. next spring. In the third quarter, its global direct-to-consumer subscriber base inched up 2.8 million worldwide across HBO, HBO Max, Discovery+ and smaller DTC streaming services, to reach 94.9 million. The direct-to-consumer unit’s EBITDA loss doubled year over year, from $309 million in Q3 2021 (on a pro-forma basis) to $634 million in the most recent quarter. DTC segment revenue declined 7% (on a pro-forma basis) to $2.32 billion.

Zaslav also told analysts on the Q3 call that Warner Bros. Discovery will be “aggressively attacking” the low end of the streaming market with its own FAST offering to launch sometime in 2023. “As a company with the largest film and TV library in the industry, we have a unique opportunity to increase our addressable market and drive real value, and we plan to move quickly,” the CEO said.