David Zaslav, JB Perrette Outline WBD Streaming Strategy

HBO Max and discovery+ will be combined into an as-yet-unnamed unified platform delivering both ad-free and ad-lite options in 2023, with a FAST service potentially to follow, David Zaslav and JB Perrette revealed in an investor call as Warner Bros. Discovery (WBD) reported its first financial results as a combined company.

“The fact is, there are only a handful of companies globally that can do what we do,” said Zaslav, president and CEO, on yesterday’s investor call. “Our asset mix, one of the most complete and diversified in the industry, uniquely positions us to drive a balanced approach to creating long-term value for shareholders. It represents the full entertainment ecosystem and an ability to serve consumers across the entire spectrum of offerings, from premium pay to linear and free-to-air, theatrical to streaming. This was the driving force to create this company over a year ago. Our objective was not only to be one of the top global streaming companies but also a media company able to drive financial returns by distributing our content on every platform. And our conviction has not changed.”

Zaslav continued, “We see ourselves as essentially the fifth broadcast network due to our unparalleled portfolio. Our low- to mid-teens CPM increases and our nearly $6 billion in commitments clearly demonstrates that advertisers now view us exactly that way. We offer our partners the most complete portfolio of live sports and news, lifestyle and entertainment, and our average share of viewership outside of the football season exceeds 25 percent. On some nights, we’re bigger than NBC, ABC, CBS and FOX combined. While there’s a lot of uncertainty in the economic backdrop, this is a strong proof point for the value we bring to the table and our ability to improve monetization over time. In many ways, we’re just getting started and have really only begun to scratch the surface with respect to the potential upside and believe we will make even more headway in the next two to three years.”

Zaslav noted that there are three priorities that will “inform all of our planning and decision-making.”

First, Zaslav said, “We will seek to attract the best storytellers and use our unparalleled creative engine, franchises and brands to produce the most compelling and diverse content offerings in the world. We’re also the preeminent maker and seller of content in the world. And going forward, we will continue to invest smartly in content in ways that will help us to grow, achieve greater market share and have a bigger impact. Some of the content we create will be distributed on our platforms, like the highly anticipated House of the Dragon, premiering on HBO Max later this month, and some will air on other platforms such as Ted Lasso and Abbott Elementary. Our focus is on making great content that people want to watch and will pay for. It’s not about how much. It’s about how good. Owning the content that really resonates with people is much more important than just having lots of content. In other words, at a time when almost every piece of content ever made is available to consumers across any number of free and paid services, curation, quality and brands have never been more important, and that is what we do best.”

The second priority will be maximizing the “reach, engagement and overall value of our content to a broad distribution and monetization strategy. Our job is to tell great stories and to bring them to as wide-ranging an audience as possible in as many ways as possible and to deliver the greatest viewing experience possible. Certainly, technology plays a big role in this, and we still have a lot to learn. But it’s equally important that we be flexible and agile, able to respond to ever-changing consumer preferences. As the maker and owner of the largest and most complete library of content in the world, we cover more surface area than almost any other media company. We have no intention of being beholden to anyone in particular or to a specific business model. Simply put, we are open for business. There’s been a lot of experimentation in our industry, and we are all smarter for it. At Warner Bros. Discovery, we believe strongly in the importance of preserving optionality and driving returns to a strategic mix of distribution and windowing options.”

Zaslav explained that the company will “fully embrace theatrical, as we believe it creates interest and demand, provides a great marketing tailwind and generates word-of-mouth buzz as films transition to streaming and beyond. As films transition from one window to the next, their overall value is elevated. We have a different view on the wisdom of releasing direct-to-streaming films, and we have taken some aggressive steps to course-correct the previous strategy.”

Elaborating on the streaming approach, Zaslav said priority number one at present is the launch of an integrated SVOD offering combining HBO Max and discovery+. “Our streaming strategy has evolved over the past year and really reflects the importance of rather than the dependence on this segment of our global content monetization plans. Once our SVOD service is firmly established in the market, we see real potential and are exploring the opportunity for a FAST streaming offering.”

The third strategic priority, Zaslav said, is operating “as one company with one mission to be the premier media and entertainment leader globally. We believe the best way to maximize the value of our company is by upgrading our businesses as a combined enterprise rather than as a series of separate, siloed and unconnected business units. We are stronger together and will make meaningful progress in operating our businesses as one team.”

Zaslav added, “We’re also going to be opportunistic about the way we grow our business in the future, whether by improving existing products or services to enhance and personalize the consumer experience, introducing new ones or expanding into new markets globally with particular focus on how to scale smartly with an eye on sustainable free cash flow, even during periods of incremental reinvestment.”

He concluded, “We have everything we need to thrive creatively and financially, including the greatest and most popular franchises and IP, the most diverse collection of global media brands and assets, the ability to generate awareness and excitement for our products across our own various platforms, a strong leadership team and the most talented creatives.”

Perrette, CEO and president of global streaming and interactive at Warner Bros. Discovery, then went into greater detail on the streaming strategy.

“For decades, our industry has embraced changing technology and consumer demand by evolving a very successful windowing approach to exploiting content,” Perrette noted. “However, in recent years, a strategy has emerged to suggest the video business would be better off collapsing all windows into streaming, overpaying for and over-investing in content and offering it all at the same time for a low price. We don’t believe in this strategy. While we intend for streaming to be a critical part of our company and a key driver of our growth, as consumers continue to shift their viewing habits from linear to nonlinear, it’s only one part of our diversified approach. The focus of our streaming strategy is consumer choice. We believe there are multiple global consumer segments in streaming, just like there have been for decades in traditional television. Some are willing to pay a premium for an ad-free experience. Others are more price-conscious and prefer to pay less with limited advertising. A sizable third group will not pay a subscription fee and only want to enjoy ad-supported entertainment. Warner Bros. Discovery’s unmatched depth and breadth of content provides us the opportunity to offer something for everyone. Providing consumers with a range of entertainment options will maximize our reach and financial returns.”

In the FAST space, Warner Bros. Discovery currently licenses content to other services. “We’ll assess how best to play in this growing business as the model evolves from free-to-air linear to free-to-view streaming.”

On the SVOD front, meanwhile, HBO Max and discovery+ will be combined next year, with the initial focus on the markets where HBO Max has already launched. The U.S. launch is expected in the summer of 2023, with Latin America to follow later that year. In 2024, European markets will come online, excluding key territories where HBO has existing output deals. Key AsiaPac markets are also on the planner for 2024. “There will still be significant opportunity for expansion beyond this, as these 70-plus countries represent less than 60 percent of broadband homes globally, excluding Russia and China. Many of the biggest markets, such as the U.K., Germany and Italy, do not fall within this 2025 plan, but we want to remain disciplined and prove out the strength of our product and profitability first.”

Ahead of the integrated platform launch, the company has already unveiled some content-sharing initiatives, with discovery+ adding a CNN originals hub this month and HBO Max adding a slate of content from Magnolia Network this fall. Plus, Perrette said, “We are leveraging the marketing power of our combined portfolio. with the biggest TV audience many nights in the U.S., the second-largest broadcast group in Europe, the number one pay-TV portfolio in LatAm and leading pay-TV lineup in AsiaPac. We will drive significant awareness for our content and streaming products, much at no cost in the creative use of unsold or noncommercial inventory.”

Perrette continued, “Our focus is on shaping a real business with significant global ambition, but not one that solely chases subscribers at any cost or blindly seeks to win the content spending wars. Instead, one that scales smartly.” EBITDA will guide the financial goals. Peak direct-to-consumer losses are expected this year, “as we do the heavy lifting around technology, personnel and integration ahead of the planned relaunch. We’re targeting the U.S. streaming business to be profitable in 2024 and for the global streaming segment to generate $1 billion in EBITDA by 2025. We believe that we can achieve these milestones with a total subscriber base of around 130 million global subs. Today, our total subscriber number for HBO Max and discovery+ is 92 million, an increase of 1.7 million over first quarter.”

Perrette noted the company is expecting healthy ARPU gains following the implementation of a new pricing strategy. “Consistent with our profitability focus, we will shift away from heavily discounted promotions that were part of the gross adds-focused strategy of the past with a more balanced approach that optimizes revenue as well as subscribers. Second, price increases, particularly in certain international regions where we are well below market. We will also plan for periodic increases as accepted in the marketplace. Third, scale benefits from broader distribution of our ad-lite offering, and as our reach and engagement grow, we will also drive CPMs, leveraging technology, enhanced products and targeted advertising.”

He concluded, “We believe that in an already crowded market and at a time when the global economy is prompting many consumers to prioritize their purchase decisions, we are uniquely and best positioned to be at the top of global consumers’ lists for video entertainment. Our greatest strength and what positions us for success as a company long-term is our ability to monetize our unparalleled collection of content in multiple ways in order to provide consumers choice and optimize asset value. That is what we intend to do, and streaming is one key part of our overall strategy. We look forward to sharing more with you as we get closer to launch.”