Raphael Stevens

McDonald’s will require its U.S. operators to pay into a new digital marketing fund starting next year, according to a memo viewed by CNBC.
The company is recommending that franchisees invest in the fund using their existing marketing contribution.
The switch is meant to modernize the company’s marketing strategy and widen its competitive advantage as it doubles down on mobile ordering and its digital business.

A Big Mac is displayed on a page of the McDonald’s app
Daniel Acker | Bloomberg | Getty Images

McDonald’s U.S. franchisees will start paying into a digital marketing fund next year as the fast-food giant looks to expand its booming digital business, according to a memo viewed by CNBC on Thursday.
The change is meant to modernize the company’s marketing strategy and widen its competitive advantage, according to the memo, which was written by U.S. Customer Experience Officer Tariq Hassan and Chief Information Officer Whitney McGinnis. The memo also said that McDonald’s plans to invest hundreds of millions of dollars over the next couple of years to improve its loyalty program and add ordering channels, including placing web orders without downloading an app, which should also bolster its digital business.

Loyalty program members accounted for more than $6 billion in system-wide sales globally during McDonald’s first quarter. The company has 34 million active digital customers in the U.S. By comparison, Chipotle Mexican Grill has 40 million loyalty members, while Starbucks has 32.8 million.
In December, McDonald’s said it aims to reach 100 million loyalty program members by 2027.
For now, the franchisor is recommending that franchisees pay for the new fund using their existing marketing contribution, which requires that they spend at least 4% of gross sales, according to the memo. As a result, the new approach will likely lead McDonald’s to cut back on legacy marketing tools, such as TV commercials, and focus on areas that tangibly lead to higher sales.
Next year, U.S. operators will have to chip in 1.2% of projected identified digital sales, such as transactions that occur when a customer logs into the loyalty program or orders delivery, according to the memo. The rate will change annually, based on projections created at the start of the year.
As a result of the change, McDonald’s is forecasting that every U.S. restaurant will see its cash flow increase by roughly $2,600, starting in 2025. The windfall comes from the digital investment costs moving from a franchisee’s profit and loss statement to the marketing contribution.
Franchisees in the U.K., Canada, Australia and Germany will also pay into the global digital marketing fund. The rest of McDonald’s markets will transition to the approach later.

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General Motors believes it can regain market share in China after hitting a roughly 20-year low last year, GM President Mark Reuss said Thursday.
GM’s market share in China, including its joint ventures, has plummeted from roughly 15% as recently as 2015 to 8.6% last year — the first time it has dropped below 9% since 2003.
The market declines have spurred questions on whether GM would exit China, as it has other underperforming markets in recent years.

GM President Mark Reuss announces a $2.2 billion investment in the automaker’s Detroit-Hamtramck Assembly plant in Michigan for new all-electric trucks and autonomous vehicles on Jan. 27, 2020.
Michael Wayland / CNBC

DETROIT – General Motors believes it can regain market share in China after hitting a roughly 20-year low last year amid changing market conditions and increased domestic competition, GM President Mark Reuss said Thursday.
The longtime GM executive said new all-electric and plug-in hybrid electric vehicles, as well as the redesign of its Buick brand, will help the automaker turn around operations in the region.

GM’s market share in China, including its joint ventures, has plummeted from roughly 15% as recently as 2015 to 8.6% last year — the first time it has dropped below 9% since 2003. GM’s earnings from the operations have also fallen, down 78.5% since peaking in 2014, according to regulatory filings.
Reuss also touted the competitiveness of GM’s Chinese joint venture partners such as Wuling Motors. GM first established operations in China in 1997.

“You can look at it any way you want from a larger geopolitical standpoint, but for us in China, this has been a great advantage for us to be partnered so deeply for so many years with our JV partners there,” Reuss said during the Financial Times Future of the Car Summit. “We have an advantage there with Buick and Wuling, and it goes both ways.”
GM’s market share declines in China are the result of growing competition from government-backed domestic automakers fueled by nationalism and a generational shift in consumer perceptions of the automotive industry and electric vehicles. The company, along with other American-based automakers, is managing geopolitical tensions between China and the U.S.
GM’s U.S.-based brands such as Buick and Chevrolet have seen Chinese sales drop more than those of its joint venture. The joint venture models accounted for about 60% of GM’s 2.1 million vehicles sold last year in China.

The market declines have spurred questions on whether GM would exit China, as it has other underperforming markets in recent years.
Reuss said Thursday that GM plans to remain in China “for the foreseeable future.”
GM CEO Mary Barra told investors in February that “nothing is off the table in ensuring that GM has a strong future to generate the right profitability and the right return for our investors” in China.
GM on Tuesday announced a “leadership transition” in China. The automaker said Steve Hill, currently GM’s vice president of global commercial operations, would succeed GM China President Julian Blissett, effective June 1.

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Warner Bros. Discovery reported first-quarter results before the bell on Thursday that missed on the top and bottom lines.
Earlier this week, the company said it would offer a streaming bundle with Disney.
On Thursday the company said it repaid $1.1 billion in debt during the quarter, and also announced a $1.75 billion cash tender aimed at further reducing its debt.

In this photo illustration, the Warner Bros. Discovery logo is displayed on a smartphone screen.
Rafael Henrique | SOPA Images | Lightrocket | Getty Images

Warner Bros. Discovery reported first-quarter results on Thursday, missing analyst expectations on both the top and bottom lines despite strength in its streaming unit.
The company’s stock fell nearly 4% in premarket trading.

Here is how Warner Bros. Discovery performed, compared with estimates from analysts surveyed by LSEG:

Loss per share: 40 cents vs. 24 cents loss expected
Revenue: $9.96 billion vs. $10.231 billion expected

Warner Bros. Discovery — which owns streaming service Max, a portfolio of cable TV networks including TNT and Discovery, and a film studio — said revenue fell 7% to $9.96 billion compared to the same quarter last year.
Warner Bros. Discovery posted a net loss attributable to the company of $966 million, or 40 cents per share, an improvement from the year-ago quarter when it reported a loss of $1.07 billion, or 44 cents per share.
The company said total adjusted earnings before interest, taxes, depreciation and amortization were down roughly 20% during the first quarter to $2.1 billion, noting its “Suicide Squad: Kill the Justice League” video game generated significantly lower revenues.

Streaming growth

Warner Bros. Discovery said Thursday it added 2 million direct-to-consumer streaming subscribers during the quarter, bringing its total to 99.6 million.

That segment earned an adjusted $86 million during the quarter, an improvement of $36 million from the prior-year quarter, the company said. It also saw revenue increase “modestly” to $2.46 billion from the prior-year quarter.
Advertising revenue for streaming proved to be a bright spot, increasing 70%, boosted by higher engagement on Max in the U.S. due in part to subscriber growth in the streaming service’s ad-lite tier and the launch of sports on the app.
The earnings release follows an announcement this week that Warner Bros. Discovery would bundle its streaming services with those of Disney — tying together Max, Disney+ and Hulu — and offer it to consumers this summer, a callback to the traditional pay-TV package. Pricing has yet to be disclosed, but it will be offered at a discount, CNBC reported.
It marks the first time two media giants are joining forces to offer a streaming bundle as the push to make streaming profitable continues. While TV networks have long been a cash cow for media companies, the bundle continues to bleed subscribers.
“As you know, I’ve been a big proponent of bundling,” CEO David Zaslav said on Thursday’s earnings call. He noted subscribers will have to stick with the bundle to take advantage of the cheaper pricing offering, which should then reduce so-called churn, referring to people dropping their subscriptions.
The entertainment streaming bundle marks the second partnership with Warner Bros. Discovery and Disney in recent months. The companies, along with Fox Corp., previously announced a sports streaming joint venture that will launch this fall.

Sports rights

On the sports front, Zaslav said Thursday that media rights negotiations with the NBA — which has long been a staple on cable channel TNT — are still ongoing, and he is “hopeful to reach an agreement that makes sense for both sides.”
NBCUniversal recently made an offer to once again own the rights, CNBC previously reported. Zaslav noted while the company has strategies in place for various outcomes, its deal with the NBA includes the right to match any other offers before the league makes a decision.
Last fall Warner Bros. Discovery began offering NBA games on Max.
The company has been rolling out Max across the globe, and Zaslav noted on Thursday it will enter more European markets ahead of the Summer Olympics in Paris. While NBCUniversal holds the U.S. rights for the Olympics, airing the games on its TV networks and Peacock streaming service, Warner Bros. Discovery’s Max will be the streaming home in Europe.

TV, Studios weakness

Though advertising revenue was strong in streaming, it remained weak for Warner Bros. Discovery’s TV networks, as did the segment as a whole.
TV networks revenue was down 8% to $5.13 billion, with advertising revenue down 11%. While the ad market has been soft for some time now, recent quarterly earnings show there has been improvement for digital and streaming while traditional TV lags behind.
Meanwhile, Warner Bros. Discovery’s studio segment revenue was down 12% to $2.82 billion compared to the same quarter last year. The segment was weighed down by the lackluster release of the latest iteration of “Suicide Squad” and the lingering effects of the Hollywood writers and actors strikes last year.
On Thursday, Zaslav said the company is striving “to return the luster” to its film studio. As part of that, he announced work is underway for the latest installment of “Lord of the Rings,” with an anticipated release in 2026.
The company’s cash position improved, with free cash flow increasing to $390 million, a $1.3 billion improvement from the same quarter last year, the company noted.
Warner Bros. Discovery has been working to reduce its debt load, which now stands at $43.2 billion, stemming from the merger of Warner Bros. and Discovery in 2022. On Thursday the company said it repaid $1.1 billion in debt during the quarter, and also announced a $1.75 billion cash tender aimed at further reducing its debt.
Disclosure: Comcast NBCUniversal is the parent company of CNBC.
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Connected rowing company Hydrow, which Peloton once tried to buy, is growing at a time when the pandemic darling is shrinking.
The company took a majority stake in strength training company Speede Fitness as fitness buffs move away from cardio in favor of weights.
Hydrow also announced that its founder Bruce Smith is stepping down as CEO and will take over as the company’s chair.

Hydrow fitness rowing machines.
Courtesy: Hydrow

Connected fitness company Hydrow, which Peloton once tried to buy, is growing sales and has acquired a majority stake in strength training company Speede Fitness as gymgoers move away from cardio exercises in favor of weights, the company told CNBC on Thursday. 
Hydrow also announced that its CEO and founder Bruce Smith will step back from day-to-day operations and hand the reins over to President and Chief Financial Officer John Stellato. Smith will take over as the chair of Hydrow’s board. 

The company, most known for its pricey connected rowing machines that cost between $1,700 and $4,000, is backed by private equity bigwigs such as Constitution Capital and L Catterton. It counts several professional athletes and celebrities among its investors, including Kansas City Chiefs tight end Travis Kelce and singer Justin Timberlake.
Hydrow has raised more than $300 million in funding. It said it acquired Speede Fitness so it can expand into strength training, one of the fastest-growing segments in fitness today. 
The acquisition comes as gymgoers pull back on cardio exercises such as running and biking in favor of weight training. 
Planet Fitness said in November that it would replace its cardio equipment more slowly, in part to free up capital.
“Our members are consistently seeking more strength and less cardio,” said Planet Fitness CFO Thomas Fitzgerald on the company’s third-quarter earnings call, adding that strength equipment costs less than cardio equipment.

Life Time fitness highlighted a similar trend in its annual fitness survey. More than one-third of respondents said “building muscle” is their No. 1 goal for 2024, an increase of more than 3% from the prior year.
Speede Fitness makes a connected strength training machine that looks somewhat similar to a BowFlex, but incorporates advanced technology such as artificial intelligence-powered cameras, sensors and a large touch screen.
“Strength training has one of the largest total addressable markets in fitness, and with Speede’s advanced technology outperforming current offerings, this acquisition is a significant milestone for both companies,” Hydrow said. “This investment supports Hydrow’s mission to expand as a whole-body health company … with a consumer product expected to come to market next year.” 
Hydrow’s acquisition and sales growth come as Peloton, which is credited with creating the connected fitness market, struggles to turn around a slowing business. In its heyday at the height of the Covid-19 pandemic, Peloton tried to acquire Hydrow rather than build its own rowing machine, but the company declined, it told CNBC. Peloton did not respond to CNBC’s request for comment.
Now, Peloton has become an acquisition target itself as numerous private equity firms consider taking it private after it posted another quarter of declining sales and losses, CNBC reported on Tuesday.
Peloton has said demand for its fitness equipment has been sluggish as consumers pull back on big-ticket items. Still, Hydrow has managed to grow as Peloton has shrunk. 
Hydrow’s delivered unit sales for its connected rowing machine jumped 23% this year from the year-ago period. On Amazon, sales increased 273% in the 12 months that ended March 31 compared to the prior-year period. 
Hydrow’s growth raises questions about whether Peloton’s problems are more related to weakness in the broader at-home fitness market or its internal stumbles and product misses. Plus, the company primarily sells cardio machines, which are falling out of favor with consumers, and its own members are flocking to strength training. The company has said its strength training content, not its cycling or running classes, is the most popular type of class for digital members and the No. 2 among those who have Peloton hardware. 
Peloton debuted its rowing machine, the Peloton Row, in September 2022, but has done little to advertise or highlight the $3,000 machine. 
It previously debuted the Peloton Guide, an AI-powered device for at-home guided strength training, but the device has received even less attention than the company’s rowing machine. 
In Peloton’s fiscal third-quarter shareholder letter, the Guide received one mention. It was about a $9.1 million write-down the company took for its product inventory. More