Plans for the two-year old streaming service take shape during Warner Bros. Discovery’s second-quarter results
Warner Bros. Discovery will launch a new streaming service comprised of HBO Max and Discovery+ in the U.S. next summer and there’s a lot we still don’t know.
But what we do know is that this represents yet another head-twisting shift in strategy for the company, just two years after launching HBO Max as one of the most ambitious — and arguably successful — streaming services on the entertainment landscape.
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“It’s the equivalent of a toxic relationship filled with broken promises,” one former Warner Bros. employee said of all the recent ownership and strategy changes the company has endured.
But hope springs eternal as WBD — which has seen its stock drop 15% since Thursday — moves forward. To better understand the future of this new company’s streaming endeavors and how it impacts audiences, let’s explore what we know for sure, what we think we know and what we don’t know.
What we know: goals (subs) and objectives (cash flow)
The company’s stated streaming goal is now 130 million global paid subscribers; it currently boasts a combined 92.1 million worldwide subs between HBO Max and Discovery+. The shift to merge HBO Max into Discovery+ will happen next summer, with the international push coming a year after that.
Add to that an interest in developing a free ad-supported streaming TV service (FAST). It’s the latest pivot in a revolving door of strategic mandates since then-Time Warner was acquired by AT&T in 2018.
Today, the company has a completely different reality than six months ago when AT&T was funding the operation and Wall Street was still bullish on streaming. As such, WBD is angling toward more strategic investment in streaming (“It’s not about how much, it’s about how good,” Zaslav said Thursday), eliciting more cash from the legacy business and cost cutting on overhead. Scripted programming is still in a strong position moving forward, but overarching company ambitions have changed.
“The north star is not going global and reaching 200 million subs on HBO Max anymore,” an HBO Max insider told TheWrap. “It’s about boosting free cash flow to support the stock and pay for the debt.”
Gross debt at the end of Q2 was a whopping $53 billion.
If WBD achieves its goal of 130 million global subs in the next 12 months, that will represent a customer base about half of Netflix’s 220.67 million.
“It’s not that they are starting from zero, but as far as audacious goals go, that’s up there, along with, well, Discovery acquiring a major studio — hard to fathom until it happened,” Ian Greenblatt, J.D. Power’s managing director and GM, tech/media/telecom Intelligence, said.
Financially, WBD’s Q2 results were a “little worse than I expected,” Steve Birenberg, founder of Northlake Capital Management, told TheWrap. The company did miss revenue expectations by $2 billion, incur a net loss of $3.4 billion, saw free cash flow miss by $200 million and is now staring at a streaming re-rollout in a competitively saturated market.
Still, Warner Bros. Discovery CEO David Zaslav gushed about HBO/HBO Max chief content officer Casey Bloys and his team when discussing the future scripted programming strategy.
“Quality is what matters. Quality is what Casey and that team is delivering. It’s the best team in the business. We’re doubling down on that HBO team,” Zaslav said.
What we think we know: customer targets (audience) and staff “efficiencies” (layoffs)
Discovery+’s content, mostly comprised of unscripted fare such as “American Detective” and “Serving the Hamptons,” and HBO Max (“The Undoing,” “Hacks”), are vastly dissimilar. This leaves Hollywood to wonder what kind of viewer overlap there is. HBO Max still skews slightly more male and slightly younger than the industry average while Discovery+ connects with women and attracts the 40-plus crowd, according to Parrot Analytics.
On the surface, the two streamers appear to be complementary in terms of creating a broad appeal, four-quadrant general entertainment product. Zaslav and his team emphasized that the combined service will offer something for everyone. That could mean more accessible fare all around (kind of like Disney) and less gambles on high-concept oddities like “Doom Patrol” or “Made for Love” (no matter how delightful they are).
Ultimately, user experience and content are what drive a successful platform. We know they have great content on the Warners side — though Zaslav has largely axed scripted content on TBS and TNT and gutted family live-action entertainment on HBO Max after pulling the plug on CNN+ and reorganized the Warner Bros. film studio — and we know they have differently attractive content on the Discovery side. So programming should be “a win” for the combined company, according to one media analyst.
However, it remains to be seen whether HBO Max subscribers will actually want Discovery+ content on their home screens and vice versa. (Not to mention Zaslav’s frosty relationship with the creative community at the moment, which could affect future development).
With an internal restructuring on the horizon, we’re also not 100% clear on how WBD will look in the near future. WBD leadership mentioned staff “efficiencies” on its earnings call and a company spokesperson told TheWrap some layoffs will come in the unscripted development segment, but mainly in tech and marketing and back office. With Zaslav readjusting the streaming parameters, there’s a fair amount of change swirling on the horizon.
“The shift is being managed in a very centralized way, which gives this a lot of speed,” the HBO Max insider said.
What we don’t know: pricing, branding and user experience
Where to begin? WBD played its Q2 earnings very close to the vest leaving both analysts and audiences uncertain of how, exactly, the company will attempt to achieve its goals and satisfy customers.
- How much will the new combined streaming service cost?
- Beyond the vague grandfather plan mentioned in the earnings call, how does the company plan to convert subscribers at both HBO and Discovery?
- Do we need to add an entirely new subscription to our monthly expenses?
- Oh yeah, and what is this new service even going to be called?
It sounds as if the combo streamer will use the technology backbone of Discovery+ and the user features of HBO Max, but no one is quite sure what that will actually look like for audiences. Either way, it sure sounds as if HBO Max as we know it is set to be replaced by this remodel.
WBD leadership made their stance on streaming-exclusive films quite clear (they’re against them!). While the removal of six HBO Max original films from the service this week was made for tax reasons, can we expect the company to more aggressively begin licensing titles to external platforms to reignite that revenue engine (as other companies, such as Disney and NBCUniversal, are actually clawing back their licensed titles to beef up their own streaming service libraries)? What’s to come of the handful of DC Comics series currently in development? And will Discovery invest more into its own programming expansion after touting the “90 Day Fiancé” universe? (180 Day Fiancé? 45 Day Fiancé? We need answers!!)
WBD’s Q2 investor call more or less left the impression that the company is in a trial period for the next 12 months as it works to pay down debt, leaving both industry insiders and anxious audiences to wonder what’s next.
Brandon Katz
Brandon Katz is an industry strategist at Parrot Analytics, a WrapPRO partner.