A report claims that Warner Bros. Discovery is allegedly looking to sell a “stake” in its video game business, which includes Mortal Kombat developer NetherRealm, Hogwarts Legacy developer Avalanche Software, and Batman: Arkham City developer Rocksteady among others.
A screenshot from Hogwarts Legacy (2023), Avalanche Software
This latest report comes from Anna Nicolaou and James Fontanella-Khan at Financial Times on August 6, 2024.
The duo report that CEO David “Zaslav and [CFO Gunnar] Wiedenfels are instead looking to offload smaller assets. They are considering offers to sell Polish broadcaster TVN or a stake in Warner’s video games business, which holds valuable intellectual property to Harry Potter games, said people familiar with the matter.”
A screenshot from Hogwarts Legacy (2023), Avalanche Software
However, on the company’s Q2 2024 Earnings Call, Michael Ng from Goldman Sachs asked about the company’s strategic value in regards to the company and whether or not the company views it as a core part of its portfolio.
The company’s CEO and President of Global Streaming and Games JB Perrette answered, “I think we look at the evolution of the storytelling and interactive entertainment as a space and say it’s one of the unique areas in media that is growing, both growing in terms of time spent, growing in terms of engagement, and growing in terms of revenue. And so we still see this as a huge opportunity for us.”
He continued, “We know that our franchises, particularly in a world where the gaming industry, launching brand new franchises is getting harder and harder for a number of reasons, including IDFA deprecation and more challenges with marketing and customer acquisition. And that franchises, like the ones that we have, are in high demand and can help in launching games.”
A screenshot from Mortal Kombat 1 (2023), NetherRealm Studios
“Now, you still need a great game,” he noted. “And the reality is we’ve had the unfortunate, in the short period of 12 months, we went from having the record year that we had in 2023 with Hogwarts Legacy to unfortunately having the opposite side of that spectrum with Suicide Squad.”
And it is still, they will still be a hit driven nature of some of that business, but one of the areas that we are particularly leaning into, is the – which is about half of the $200 billion games business, is the free to play space,” he shared. “And the Player First deal was really about strengthening our capabilities in that space, because we do think we are subscale and we have more opportunities to grow in that space, which is a big part of the market. And when we do, that it will help also provide some more balance to our games business from the inevitable cyclicality of more console based releases, which have a three to four year time horizon and a little bit more lumpiness, even when you do get it right.”
“And so we continue to be strong believers in the game space,” he concluded. “We want to continue to see and figure out how we lean into it and get bigger in that space, and we’ll certainly tell you more about it as time goes on.”
A screenshot from Suicide Squad: Kill the Justice League (2024), Rocksteady
CEO David Zaslav also added, “One of the strategic advantages of owning all of our IP is, as the world has changed, it used to be you launch a movie or you launch a TV series and then you do a game. But one of the reasons that Hogwarts Legacy was so successful and the number one game last year is that you went to Hogwarts Legacy and you entered the game and you were able to become part of that world. And that ultimately, I think, is a big piece of where this industry is going.”
He continued, “We’ll create a movie, whether it’s Batman or Superman or Harry Potter, and then maybe there’ll be a TV show. But the ability to go into that world and have that experience of spending time with all the characters is something that we still own. We have 11 studios here and we have a lot of IP, and there’s also a lot of interest among others in coming to take advantage of some of that IP for gaming, which we’re looking at. Because as JB said, we need to get bigger, and the IP that we own and the value that it has in the gaming space, is something we’re looking to take advantage of.”
A screenshot from Hogwarts Legacy (2023), Avalanche Software
Of note, NetherRealm did reportedly shut down its entire mobile team in July. Former employee Tony Lazzara posted on LinkedIn, “Good morning internet. Unfortunately, yesterday Netherrealm’s mobile team was shut down. A ton of very talented people were put out of work. We had live services on multiple titles such as Mortal Kombat Mobile, Injustice 2, and Mortal Kombat Onslaught. I was also affected. Every single person I’ve worked with on that team is an amazing collaborator, passionate, and very creative.”
Tony Lazzara on LinkedIn
Warner Bros. Discovery also revealed that its revenue declined 41% without factoring in foreign exchange year of year in its most recent earnings report.
It specifically stated, “Games revenue declined 41% ex-FX, primarily driven by the weak performance of Suicide Squad: Kill The Justice League this year, compared to the strong performance of Hogwarts Legacy in the prior year.”
CFO Gunnar Wiedenfels also added during the call, “While, as we’ve called out last quarter, games are still struggling against last year’s Hogwarts Legacy comp, and a muted response to Suicide Squad this year.”
In the company’s 2024 Q1 Earnings Call, Wiedenfels detailed, “Starting with Studios, the $400 million plus year-over-year decline in Q1 was primarily due to the very tough comp we faced in games against the success of Hogwarts Legacy last year in the first quarter, in conjunction with the disappointing Suicide Squad release this past quarter, which we impaired, leading to a $200 million impact to EBITDA during the first quarter.”
A screenshot from Mortal Kombat 1 (2023), NetherRealm Studios
While their gaming division is clearly struggling this year with the release of Suicide Squad: Kill The Justice League, it does appear that Warner Bros. Discovery still sees a lot of value in it.
As for this report, there might be some truth to it, but it might be more of a licensing deal where Warner Bros. Discovery allows outside studios develop Harry Potter and DC-based video games rather than just solely relying on its internal studios.
A screenshot from Hogwarts Legacy (2023), Avalanche Software
What do you make of this report and the comments from Perrette and Zaslav?
