Warner Bros. Discovery Q1 Earnings Hit by Netflix Fee

Warner Bros. Discovery's Q1 earnings, reported on May 6, 2026, were weighed down by a termination fee tied to the Netflix merger and acquisition-related charges, pressuring cash flow and raising leverage concerns ahead of the PSKY acquisition.

Quarter Results and Financial Drivers

For the quarter ended March 31, 2026, Warner Bros. Discovery reported revenue of $8.9 billion, down 1.0% year over year. The company posted a net loss of $2.9 billion, or $1.17 a share, missing the consensus loss estimate.

The quarter’s results reflected a $2.8 billion Netflix termination fee recorded in operating expenses after the merger agreement was terminated. This payment was made by Paramount Skydance (PSKY) on Warner’s behalf under the merger terms. The period also included $1.3 billion of pre-tax acquisition-related amortization of intangibles, content fair-value step-up, and restructuring charges.

Adjusted EBITDA rose 5.0% to $2.2 billion, supported by gains in streaming and studios that partly offset declines in linear networks. Streaming adjusted EBITDA increased 29.0% to $438 million on $2.9 billion in revenue, with about 140 million global subscribers. Studios reported adjusted EBITDA of $775 million on $3.1 billion in revenue, up 35.0%. Meanwhile, global linear networks saw revenue decline 8.0%.

Free cash flow swung to an outflow of $476 million from a $302 million inflow a year earlier. The change reflected higher content investment, taxes, working capital needs, and roughly $100 million in separation and transaction costs related to the pending acquisition.

Balance Sheet and Merger Context

As of March 31, 2026, the company held $3.3 billion in cash and $33.4 billion in gross debt, resulting in net debt between $30.1 billion and $33.4 billion and net leverage of about 3.4 times. A $15 billion bridge loan remained outstanding.

The $81 billion cash acquisition of Warner Bros. Discovery by PSKY, at $31 per share, frames the significance of the nonrecurring charges. PSKY triggered and paid the Netflix termination fee in late February 2026 after outbidding Netflix. The fee would be refundable to PSKY under certain conditions, creating a potential reimbursement obligation for Warner. Management noted that Q1 is seasonally weak for cash flow and that transaction-related cash costs remain ahead, factors that could complicate near-term financing and leverage decisions as the merger advances.

Quote

"As a result of the termination of the Netflix Merger Agreement, PSKY, on behalf of the Company, paid Netflix a termination fee of $2.8 billion in cash (the 'Netflix Termination Fee')." — Warner Bros. Discovery press release