Film Hits Help Warner Bros. Swing to Profit As Company Restructures

Warner Bros. Discovery Inc., the parent of HBO and CNN, swung to a profit in the second quarter, buoyed by a string of successes at the box office.

The New York-based company posted revenue of 9.81 billion, up 1% from a year ago, in line with Wall Street’s estimate. Warner Bros. reported net income of $1.58 billion, compared with a loss of $9.99 billion a year earlier.

The shares gained 3.2% in premarket trading in New York.

With more TV viewers switching from cable to streaming, Chief Executive Officer David Zaslav is unwinding the deal he did a few years ago, breaking the company into two separate entities to unshackle its streaming assets and studios business from the struggling cable division. The new Global Networks business will include entertainment, sports and dozens of cable television brands such as CNN, TNT and TBS. The Streaming and Studios company will house HBO Max, Warner Bros. Television and the movie studio.

Zaslav acknowledged that the tide had shifted for legacy media companies last year, when Warner Bros. took a $9.1 billion charge to write down the value of its traditional TV networks. After being derided for a series of missteps at Warner Bros., including an expensive Batgirl flop and losing out on lucrative media rights to NBA games, Zaslav has been somewhat vindicated with a string of successes in film this year.

The studios unit has been on a Hollywood hot streak, with chart-topping hits including Sinners, A Minecraft Movie and Final Destination: Bloodlines. Warner Bros. Studios has four of the top-10 global Hollywood movies this year, the company said. Revenue in the unit rose 55% to $3.8 billion, compared with analysts’ forecasts of $3.12 billion. Adjusted earnings before interest, tax, depreciation and amortization rose to $863 million from $210 million.

“This pattern of creative success is the result of a three-plus year attack plan aimed at enhancing every dimension of our creative culture and storytelling business,” Zaslav said during the company’s second-quarter earnings call on Thursday. 

James Gunn will write the “next installments of the DC super-family,” the company said in a note to shareholders, including Supergirl: Woman of Tomorrow for next year and the next Wonder Woman. The Batman II is preparing to begin shooting next spring for release in 2027.

Those wins contrast with continued decline at the television networks unit, the company’s biggest source of revenue, which includes CNN, TNT and TBS. Sales dropped 9% to $4.8 billion driven by a decrease in pay-TV subscribers and a drop in advertising revenue.

In the current quarter, advertising revenue for the networks is expected to decline at a higher rate than in the second quarter, due to a lighter sports schedule, a comparison with last year’s summer Olympics and the boost CNN got last year from US election coverage. The loss of the NBA will also impact advertising revenues.

As the company adapts to changes in how people consume content, Warner Bros. is “focused on maintaining our production slate for broadcast TV,” while continuing to boost its roster of subscription video on demand titles. Warner Bros. has 11 scripted series green lit in addition to a growing development pipeline, according to the shareholder letter, which noted that “we have confidence in our ability to sustain long-term growth in our TV business.”

Like its rival Walt Disney Co., Warner Bros. is focusing on its streaming plans. The company recently renamed its streaming site HBO Max, reverting back to an earlier name, recognizing the power the HBO brand established on cable as it seeks to build up a direct-to-consumer product. Warner Bros. reported a gain of 3.4 million streaming subscribers in the second quarter, bringing the total to 125.7 million. 

Much of that growth was driven by the launch of HBO Max in Australia, which bodes well for upcoming launches in Germany, Italy, the UK and Ireland in 2026. Warner Bros. is on track to surpass 150 million streaming subscribers by the end of next year, the company said. The unit reported adjusted Ebitda of $293 million and revenue of $2.79 billion.

The company is also going to crack down further on password-sharing for streaming next month, Warner Bros. streaming and gaming CEO JB Perrette said on the company’s earnings call. 

“The real benefits will start probably in the fourth quarter and then kick-in 2026,” he said. 

Monetizing Warner Bros. vast library of content is key to the company’s strategy, and the shift into streaming will initially weigh on the company’s bottom line, according to the shareholder letter. Licensing content internally to HBO Max will impact financial results as gross profit generated at the studios division is initially eliminated, the company said, but profit will flow back over time. 

“This content contributes to the growth and sustainability of HBO Max and WBD overall, despite the necessary trade-off of lower near-term revenue, adjusted Ebitda and free cash flow generation.”