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Warner Bros. Discovery lowers full-year profit outlook due to Hollywood strikes

Warner Bros. Discovery (WBD) lowered its full-year profit outlook on Tuesday, citing impact from two ongoing workers' strikes in Hollywood.

A writers' strike just entered its fifth month while actors are set to hit month two on the picket lines next week. Both unions are fighting for more protections surrounding the role of artificial intelligence in media and entertainment, in addition to higher streaming residuals as more movies and TV shows go direct to streaming.

In a regulatory filing released Tuesday morning, the media giant said it expects full-year adjusted EBITDA in a range of $10.5 billion to $11 billion, down from the prior low-end range of $11 billion to $11.5 billion.

"Adjusted EBITDA will be negatively impacted by approximately $300 to $500 million, predominantly due to the impact of the strikes," the company said, emphasizing the double work stoppage will have an impact "on timing and performance of the remainder of the 2023 film slate, as well as the company’s ability to produce and deliver content."

David Zaslav, president and CEO of Warner Bros. Discovery
David Zaslav, president and CEO of Warner Bros. Discovery, arrives at the premiere of "The Flash" on Monday, June 12, 2023, at Ovation Hollywood in Los Angeles. (Jordan Strauss/Invision/AP) (Jordan Strauss/Invision/AP)

Warner Bros.' "Dune" sequel, originally scheduled for November 2023, was recently delayed to March 2024 due to the strikes. That's a significant blow to the overall box office, which has yet to reach pre-pandemic levels.

But while profits will suffer, free cash flow is set to gain as projects are indefinitely put on hold.

After reporting free cash flow of over $1.7 billion in the second quarter, WBD said it is raising its expectations for the full year to at least $5 billion.

The company also expects to exceed $1.7 billion in free cash flow for the third quarter following the strong performance of "Barbie" as well as further cost savings "from strike-related factors."

Strikes' financial impact 'will persist through the end of 2023'

Warner Bros. Discovery estimated during its second quarter earnings call last month that the strikes would be resolved by early September.

There's currently no end in sight for the dual work stoppage after studio negotiations hit a stalemate last month. At that time, the Writers Guild of America (WGA) slammed the studios' counterproposal, lamenting it didn't come close to satisfying writers' demands. Talks have not resumed since.

"While WBD is hopeful that these strikes will be resolved soon, it cannot predict when the strikes will ultimately end," the company said on Tuesday. "With both guilds still on strike today, the Company now assumes the financial impact to WBD of these strikes will persist through the end of 2023."

According to data released by the Bureau of Labor Statistics Friday morning, employment in motion picture and sound recording industries decreased by 17,000, "reflecting strike activity." It was the first time the strikes registered a hit to the monthly jobs report.

Kevin Klowden, chief global strategist at the Milken Institute, estimated the current strikes will soon cost the national economy $5 billion-plus, upwardly revising his previous estimate of $4 billion.

"The main thing we're really factoring into it is the lost wages," Klowden told Yahoo Finance Live in an interview last week. Klowden noted California will be impacted, but also other popular filming locations like New York, Atlanta, Albuquerque, and Pittsburgh.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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