The news: Warner Bros. Discovery reported its earnings on Thursday, missing some of analysts’ expectations.

• Revenue fell 8% to $9.82 billion, trailing expectations of $10.36 billion per Refinitiv estimates. Its revenue was also 8% down from one year ago.
• WBD added 2.8 million streaming subscribers in Q3, bringing it to 94.9 million direct-to-consumer customers—but revenue in that business unit fell to $2.3 billion, down 6%.
• Discovery experienced an 11% drop in advertising across its TV networks.

How we got here: It’s been a challenging half-year since David Zaslav’s cable programming empire Discovery Inc. combined with WarnerMedia last April. WBD has been harmed by a massive debt load and a demoralized workforce, both of which are affecting its strategy.

Money matters: WBD’s $47.5 billion in net debt is a tough pill to swallow. To put things in perspective, its net leverage ratio is roughly 5:1, higher than most other media companies.

• According to an October SEC filing, WBD anticipates paying $3.2 billion to $4.3 billion in pre-tax restructuring costs tied to its merger.
• With that debt, it’s likely that WBD may make some decisions against its long-term interests. Case in point: Holding on to TNT's NBA rights will be challenging when they expire after the 2024–2025 season, with the NBA all but certain to demand a significant hike over the more than $1 billion TNT currently pays to carry games.
• In order to prepare for the merger of the HBO Max and Discovery+ services the following year, WBD has trimmed or eliminated dozens of titles from the former. It also plans to discontinue making HBO Max originals in a number of European nations.
• Highly anticipated programming like “Demimonde” from producer J.J. Abrams and the “Batgirl” film have been canceled, even after completing production, for tax credits.
• Six upcoming animated shows, including Bruce Timm’s “Batman: Caped Crusader,” intended to expand upon his highly acclaimed 1990s “Batman: The Animated Series,” have been canceled by HBO Max. A number of other projects that have been halted will be pitched to competitors.

Reason to hope: On the bright side, during the company's Q2 earnings call, WBD revealed that the company would consider the possibility of launching a free, ad-supported streaming TV (FAST) service.

• A service akin to Pluto, operated by Paramount Global, and Tubi (Fox Corp.) would bring in incremental ad dollars in the same way it has for those two competitors.
• The service is expected to launch after the merger of HBO Max and Discovery+, which isn’t expected until spring 2023, according to an update from the company’s earnings call. So those FAST dollars aren’t exactly right around the corner.

Our take: WBD has made its position clear: It won't overpay on programming to increase the subscription numbers for its streaming services. That position of austerity isn’t exactly wrong for our current inflationary times, but is it right? With consumers concerned about the number of streaming services they’re willing to pay for, does WBD really want to give them a reason to cut theirs?