Warner Bros. Discovery Sees Streaming Profits Sooner Than Expected

“We’ve turned the corner on our streaming business,” Chief Executive David Zaslav said on a call with analysts to discuss the media giant’s latest quarterly results, adding that the unit “is no longer a bleeder.”

For the quarter ended March 30, Warner Bros’ direct-to-consumer unit—which includes HBO Max and Discovery+—added 1.6 million subscribers during the first three months of the year and adjusted earnings came to $50 million, compared to a loss of $654 million a year ago.

The segment ended the quarter with 97.6 million subscribers worldwide.

On May 23, the company will launch its new “Max” streaming service, which combines content from HBO and other Warner Bros. library content with the unscripted fare on the Discovery+ service, which will continue to operate as a stand-alone entity for the foreseeable future.

Despite the success of its streaming business, Warner Bros. Discovery revenue fell in the quarter, and it posted a steep loss amid continued softness in the advertising market and a weak slate of films from its movie studio.

The company, formed last year as a result of Discovery’s merger with AT&T’s WarnerMedia, posted revenue of $10.70 billion, below analysts’ expectations of $10.75 billion. Adjusted to reflect year-ago results that account for the merger, revenue fell 6% from a year ago.

Warner Bros. Discovery swung to a first-quarter loss of $1.07 billion, or 44 cents a share, compared with earnings of $456 million, or 69 cents a share, a year ago.

The loss included a $1.81 billion charge tied to the amortization of assets related to the merger of WarnerMedia and Discovery.

Particularly challenged is the company’s cable network business, which includes CNN, TNT, TBS and the Discovery channel. Besides the continuing effects of a weak advertising market, it is also enduring subscriber declines because of cord-cutting. Revenue at the company’s networks segment fell 12% to $5.58 billion, dragged down by a 15% drop in ad sales.

The company said the U.S. audience for entertainment networks and news channels continued to shrink, and advertising markets were soft.

Shares fell 0.7% to $12.25 in morning trading.

The studios segment, which includes Warner Bros., posted revenue of $3.21 billion, down 8% from a year ago. Disappointing box office for “Shazam” was a key factor.

The new Max service will include “Harry Potter” content and eventually will feature sports and news, Mr. Zaslav said. While growth is a priority, the chief executive said reducing the churn is perhaps even more important and is a major reason why the company is opting not to go with an HBO-only streaming service.

HBO and HBO Max have high churn—subscribers dropping the service after a particular show has ended—while Discovery+ has low churn, Mr. Zaslav said. The expectation is that by offering a wider range of content, including family fare on Max, the subscriber rollercoaster will flatten out.

“We’re adding a lot of artillery to the offering,” Mr. Zaslav said.

Not addressed on the call by Mr. Zaslav was the potential effect of a strike by television and film writers that was called earlier this week after the Writers Guild of America failed to reach a new three-year deal with the Alliance of Motion Picture and Television Producers, the coalition representing major studios, streamers and networks.