Warner Bros. Discovery (NASDAQ:WBD) is adjusting its financial outlook for the year 2023 as it grapples with the ongoing strikes in the entertainment industry initiated by the Writers Guild of America (WGA) and the Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA).
The Writers Guild of America initiated its strike on May 2, 2023, followed by SAG-AFTRA’s strike on July 14, 2023. Both strikes are aimed at securing fair compensation, protection against the impact of artificial intelligence, and more favorable working conditions.
In a recent filing with the Securities and Exchange Commission (SEC), WBD has lowered its adjusted EBITDA guidance for the full year, now ranging between $10.5 billion and $11 billion. This adjustment is primarily attributed to the ongoing strikes, which have negatively impacted the timing and performance of the 2023 film slate and content production, resulting in an estimated loss of approximately $300 million to $500 million.
During its earnings call on August 3, 2023, the company initially provided its financial guidance for the year 2023 with the assumption that the strikes would be resolved by early September.
WBD has also raised its expectations for free cash flow for the entire year to a minimum of $5 billion. Additionally, the company anticipates surpassing $1.7 billion in free cash flow for the third quarter of 2023, partly due to the strong performance of the Barbie franchise and the effects of the ongoing strikes on certain factors.
The company remains committed to its objectives of achieving a net leverage below 4.0x by the end of 2023 and targeting a gross leverage range of 2.5x to 3.0x by the end of 2024.
The Hollywood strikes have had a notable impact on WBD’s content lineup. Notably, the release of Warner Bros. Discovery’s “Dune: Part Two” was postponed from the 2023 box-office slate due to concerns about marketing capabilities during the labor strikes. The film’s new release date is March 15, 2024, displacing “Godzilla x Kong: The New Empire,” which has been rescheduled for April 12, 2024. The reshuffling also affected the animated movie “Lord of the Rings: The War of the Rohirrim,” which will now premiere on December 13, 2024.
An interesting revelation from a poll conducted by Data For Progress is that a majority of Americans, regardless of their political affiliation, support both strikes. Approximately 67% of Americans express support for the strikes, while 18% are opposed. The poll, which surveyed 1,124 respondents, also indicates that about 59% of Americans hold an unfavorable opinion of major Hollywood studios for rejecting the demands made by both unions.
WBD is dedicated to reaching a fair resolution with the writers’ and actors’ guilds and is actively working toward an agreement that recognizes their valuable contributions to the industry.
The company intends to closely monitor the situation and update its financial assumptions based on the timing and any additional consequences that may arise following the resolution of the strikes.
WBD is gearing up to offer live-streaming news services through free ad-supported streaming TV channels. It faces competition from established players like Fox (NASDAQ:FOXA) News, Cumulus Media’s (NASDAQ:CMLS) ABC News, and Paramount Global’s (NASDAQ:PARA) CBS News. WBD is benefiting from the rise in total direct-to-consumer revenues, which surged by 13.4% from the year-ago quarter to reach $2.73 billion in the second quarter of 2023. This upward trend is expected to continue in the third quarter of 2023, with the Zacks Consensus Estimate projecting third-quarter revenues at $10.08 billion, reflecting year-over-year growth of 2.57%.
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