Warner Bros. Shuts Down Game Studios, Struggles To Revive DC and Harry Potter Franchise Success

Warner Bros. Discovery Inc WBD is shutting down three video-game studios and halting work on a Wonder Woman title to refocus on the games division on Harry Potter, Mortal Kombat, Game of Thrones, and DC Comics franchises to boost profitability.

The company is closing down Monolith Productions, Player First Games, and Warner Bros. Games San Diego, Bloomberg cited from an internal memo.

Prior reports indicated troubles with the Wonder Woman game and the Warner Bros. Games unit following the underperformance of Suicide Squad: Kill the Justice League, MultiVersus, and Harry Potter: Quidditch Champions.

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Current and former employees blamed President David Haddad, who stepped down in January, for the troubles.

Monolith’s video game production included Middle-earth: Shadow of Mordor, an action game set in The Lord of the Rings universe.

Warner Bros. acquired Player First Games last July, just before the release of its sole game, MultiVersus. In January, Warner Bros. shared plans to shut down that title following poor performance.

In January, Warner Bros. CNN shared plans to lay off hundreds of employees to refocus its business around an international digital audience while lowering production costs.

However, in February, Warner Bros. and Jinjiang International disclosed plans to establish a “Harry Potter Studio Tour” in Shanghai. This would join the existing locations in London and Tokyo, but it is likely to be nearly four times bigger than the London park inaugurated in 2012.

Goldman Sachs analyst Michael Ng warned Warner Bros. could be in for a tough fourth quarter with concerns about the company’s DC Studios reboot, the loss of NBA rights, and the underperformance of “Joker: Folie a Deux” at the box office.

Benchmark analyst Matthew Harrigan reiterated Warner Bros. with a Buy and a $18 price target.

The rerating reflects the company moving into a well-anticipated earnings report and CC tomorrow morning, as management reconciles DTC and Studio growth initiatives with leaner cost structures while addressing linear Network erosion.

Given the gradual blending of linear and streaming TAMs, the monetization of in-house content should continue to gravitate toward Max even as the 2024 AVOD-friendly content deals with Xfinity and Spectrum enhance the overall consumer proposition and allow a smoother transition.  

There should also be further granularity relating to the December reorganization of the current operations into Global Linear Networks and Streaming & Studios, which may offer better delineation of value, even without any intermediate spin-off.  

Harrigan remains more sanguine about the loss of the NBA following this season, especially with TNT Sports still producing Inside the NBA for ESPN and ABC and retaining significant NBA content rights for TNT Sports, Bleacher Report, and House of Highlights with no rights fees for the next 11 years.

According to Nielsen, early season 2024-2025 NBA ratings have been unimpressive, while TNT softness contributed to a combined 5% decline across the two cable networks.

These declines are partially attributable to predictable MVPD video erosion with a likely bounce next season on NBC and Peacock and likely lower viewership on Amazon Prime games relative to linear TV broadcasts.  

Harrigan projected fourth-quarter revenue of $10.13 billion.

Price Action: WBD stock is up 0.23% at $10.72 at last check Wednesday.

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