The Warner Bros. Discovery second quarter earnings call is taking place on Thursday afternoon after a rough week for the company.
During the past few days, Warner Bros. cancelled both Batgirl and Scoob! Holiday Haunt while both films were in post-production. It is unprecedented for a major studio to do this. On top of this, HBO Max has quietly removed Max Originals and HBO series from their platform. The films are available through digital retailers on VOD but by removing them from the platform, it means not having to pay any residual payments to cast and crew. David Zaslav might be a numbers guy but he is in over his head when it comes to running a motion picture studio. Unscripted might be best for Discovery but when it comes to Warner Bros. and HBO, you cannot cut scripted and plan to survive.
Zaslav was the first one to speak on the call. He went over the company’s strategic priorities before turning it over. The strategic priorities will in their decision-making include:
- Seek to attract the best storytellers to produce the most compelling and diverse content in the world. Continue to invest smartly in content for theatrical, streaming, or other platforms. Their focus is on making great content. “It’s not about how much. It’s about how good….duration, quality, and brand has never been more important.”
- Maximize reach and engagement while focusing on monetization opportunities.
- Operate as one company with one mission to be the premier leader in entertainment globally. Operate as one enterprise rather than multiple units. They are stronger together and will make meaningful progress in operating businesses as one team.
“We will fully embrace theatrical as we believe it creates interest and demand.” Theatrical helps build buzz for streaming and beyond. What this means is the previous theaters to HBO Max in 45 days is probably done. The model will see films go to PVOD before landing on the streaming service.
With respect to streaming, their main priority is launching a SVOD platform. They plan to bring HBO Max and discovery+ together under one roof. The audio broke up a bit on my end but more plans will be known during their Investor Day at the end of the year.
JB Perrette took over. He’s discussing the current streaming approach for all at once content. They plan to have ad-free and ad-lite streaming platforms. On HBO Max and discovery+, both services are unique and complementary. They are also different in how consumers engage with the content. Some are appointment-driven while others are for comfort. They are also now doing content sharing. CNN+ is back in a way with their originals going to discovery+.
The new combined product offering will also roll out under a single brand and more details will come closer to launch next year. They plan to deliver the best of both. Market-leading features with the world-class performance. Better content discovery and more personalized choices. “Meaningfully reduce churn.”
They expect streaming will turn of profit in 2024. They have 92.1 million combined subscribers between HBO Max and discovery+. WBD estimates an overlap of 4 million subs between the two. They estimate 130 million global subs by 2025. Outside of the US, the rollouts of the new platform will also take a few years to launch globally. No new name for the combined service at the moment or what the price will be. Given inflation at the moment, people are also cutting back in which streamers they subscribe to right now. Trust me, if not for press perks, I would be doing the same.
DTC subscriber definitions are also changing going forward. Previous HBO Max numbers included AT&T subscribers that never activated their subscriptions.. These numbers will not be included in the future. Q2 ended with 92.1 million subscribers.
WBD is also restructuring their “content portfolio for scripted linear, kids/animation, direct-to-HBO Max films, and international.” This segues into mentions of why Batgirl, Wonder Twins, and Scoob! Holiday Haunt were cancelled. It’s still unprecedented that they would completely gut films during post-production. Why not let it get a theatrical release?!? Or do they just not have any faith in these films to get any kind of a profit?
We’ve reached the Q&A portion and a question for Zaslav to discuss the cancellation of Batgirl and direction of the DC Extended Universe (DCEU). Zaslav talks up the WB history, DC, and their proven IP. “Our ambition is to bring Warner back and produce great high-quality films.” DC is at the top of their list–they will have a team put a 10-year plan in place much like Marvel Studios has done with Kevin Feige. They won’t release films unless their ready. “DC is something that we think we can make better and we’re focused on it now.” Plugs The Flash without addressing the elephant in the film.
Zaslav says they’re looking at performance of streaming, how people consume or buy a service, and long-term performance. It’s no comparison to launching theatrical. They cannot find an economic case or value for it. WBD will also focus on theatrical–films coming to HBO Max will have more value in this regard. Some will go through all of the windows, others might get to HBO Max sooner. It also depends on the film. “We’re not gonna put a movie out unless we believe in it.” “Our job is to protect the DC brand and that’s what we’re gonna do.”
Three levers on driving engagement in streaming:
- Brand marketing
- The content proposition will be drastically enhanced
- Product enhancement cannot be underestimated.
They are not discussing prices for the upcoming combined platform.
This call is certainly becoming an ad for the upcoming Game of Thrones prequel series, House of the Dragon.
Their strategy is to also embrace, support, and drive HBO Max. “It’s at a very unique moment.” Describes it as an extraordinary asset. “We want it to be broader.” “We think that that product is gonna be superb…it’s about curation, it’s about quality.” Zaslav is certainly encouraged and supportive–still great but a small amount of appointment viewing series is that people come in and they go out. They are stressing getting the churn down even as they are putting all of the content together. On the call, they intend to keep spending on HBO content.
Anything important to the growth of HBO Max is something that they will keep. They have no shortage of content in the massive Warner Bros. library. Some could be licensed out to other platforms if I understand correctly.
The HBO brand is a crown jewel of the company. They are continuing to look–the data shows that everyone is going to HBO Max but the data is different than a year ago. No matter what happens to the streaming services as they come together, the HBO brand will live on. They stress focusing on value and revenue rather than purely on subscriber numbers.
WBD will spend significantly more on content for HBO Max than in other areas. The content spend will go up but they are reprioritizing what they are going to spend in. There will be more growth coming from outside the US but they still believe there is a meaningful opportunity to grow US subs. They want to drive profitability and free cash flow. Both companies are spending more.
More to come…
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