Warner Bros. Discovery is shifting its focus to driving down churn — the rate at which subscribers cancel — after revealing on Friday that its direct-to-consumer business is expected to reach profitability in the United States in 2023, a year ahead of schedule.
“The churn on Discovery+ is quite low, the churn on HBO Max is high and so driving that churn is as or maybe more important than driving the growth,” CEO David Zaslav told investors and analysts during the company’s first-quarter earnings call on Friday. “If we can drive down the churn, the growth will be very substantial and so we have a series of attacks in order to do that.”
The entertainment giant, which will launch its rebranded Max streaming service on May 23, plans to focus on family-friendly content.
“The more people that use it in the family, the more engaged people are, the broader the offering, the lower the churn,” Zaslav noted. “We also have a technology advantage now in terms of catching people that want to buy the product that weren’t able to and this is a business of artillery. We’re adding a lot of artillery here to the offering in order to get more to get more viewers in the family engaged and excited, and about the amazing quality content that we have. But we have more weapons: We have sports and we have news and those are on the sidelines right now.”
The direct-to-consumer division added 1.6 million streaming subscribers during the first quarter of 2023 for a total of 97.6 million globally and reported a profit of $50 million, a $704 million year-over-year improvement on a pro forma combined basis.
Revenue for the segment came in at $2.455 billion, including $2.165 billion in distribution revenue, down 1% year over year as global retail subscriber gains were more than offset by a decline in wholesale revenues, $103 million in advertising revenue, up 29% year over year primarily driven by subscriber growth on DTC ad-supported tiers, and $185 million in content revenue, down 16% year over year driven by lower third-party licensing of HBO content. Average revenue per user came in at $10.82 domestically, $3.48 internationally and $7.48 globally.
Looking ahead, Warner Bros. Discovery reaffirmed that the DTC business will generate a $1 billion profit in 2025.