JB Perrette, Chairman and CEO of Warner Bros. Discovery Global Streaming and Games, speaks on stage during a Warner Bros. press event. Discovery Streaming on April 12, 2023 in Burbank, California.
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However humble he is, Discovery of Warner Bros. CEO David Zaslav proved this week that he is definitely a dropper.
Warner Bros. Discovery on Wednesday unveiled its new streaming service, offering a combination of programming from HBO Max and Discovery+. It’ll launch May 23 in the US, later this year in Latin America, and the rest of the world in 2024. And it’ll be called “Max” — minus “HBO.”
On the surface level, Warner Bros. Discovery to drop the HBO Max name is a logical marketing choice. Look further, and it begins to look like a microcosm of an existential tension that lies at the heart of the business – and the media industry more broadly.
The company tries to compete netflix And disney to be a streaming winner, while sending a message of financial discipline that deprioritizes streaming subscriber additions. It’s a matter of quality versus quantity, and Warner Bros. Discovery tries to play both sides.
“Max is where consumers can finally say, ‘Here’s a service that not only has something for everyone in my household, but something awesome for everyone in my household,'” said JB Perrette , head of corporate streaming, during a presentation featuring Max Wednesday in Burbank, Calif.
HBO Max is no more
Perrette explained on Wednesday why Warner Bros. Discovery dropped the HBO part of the new service’s name. HBO is synonymous with adult entertainment, and Max will focus on offering programs for children and families, he said.
“We all love HBO,” Perrette said. “It’s a brand that’s built over five decades to be the forward-thinking, game-changing trendsetter for adult entertainment. But it’s not exactly where parents would most easily drop their kids off. Without surprise, the category hasn’t reached its true potential on HBO Max.”
In this illustration photo, the Warner Bros. Discovery displayed on a smartphone screen and in the background are the HBO Max and Discovery Plus logos.
Raphael Henrique | Light flare | Getty Images
Warner Bros. executives Discovery felt the name of HBO actually limited the viewership of the streaming service because it scared off potential audiences. They also felt that the HBO brand could be diluted by the flood of reality TV shows from Discovery that would join the platform, such as “Dr. Pimple Popper,” “90 Day Fiance,” and various HGTV shows that serve more easily from background TV than from tariff. for the office-to-water cooler conversation.
“HBO is not television. HBO is HBO. It has to stay that way,” Perrette said at the event. “We won’t be pushing it to the breaking point by forcing it to take on the full breadth of this new content proposition if we had kept the name in the service mark. In doing so, we will enhance and enhance our range unparalleled other content and brands that will be key to broadening the appeal of this enhanced product.”
The company’s reasoning is rational. HBO appeals to a certain audience, but also doesn’t appeal to a certain audience. HBO fans won’t unsubscribe from the service in response to Max’s name, but some people who were scared off by HBO can now sign up once the adult brand has been clouded by the deluge of distinctly non-HBO content. arriving on the service.
Evolution of Streaming
During the initial launch of HBO Max, AT&T and WarnerMedia executives emphasized to subscribers that this new app is, first and foremost, the home of HBO. Now, about 80 million subscribers later, that point is less important. Those who want HBO already know where to find it, and HBO Max will simply turn into Max on most platforms.
Streaming is entering its “teenage” years, Perrette said, and Max as a name makes more sense to continue adding subscribers globally in a low-growth world.
It would be the end of the story if the stated goal of Warner Bros. Discovery was to maximize (no pun intended) the number of subscribers who sign up for Max.
It was the goal of all media companies when Zaslav agreed to merge Discovery with WarnerMedia. in 2021. But according to Zaslav, this is no longer the priority.
“I’d rather have 100 million subscribers or 150 million subscribers and have it really profitable than try to stretch a lot and end up losing money,” Zaslav told Julia Boorstin from CNBC after the presentation on Wednesday. “We look at what people watch on Max and we can see exactly what they like and exactly what they don’t like. And some of the things they don’t watch we can put on a free AVOD [advertising-supported video on demand] platform, and some of the things they don’t watch, we may keep them non-exclusively on Max, but we may also sell them to others.”
“We are relentlessly focused on creating great content and monetizing it in every way possible,” he said.
With its new streaming strategy – and Max at the center – Warner Bros. Discovery hedges its bets.
The company keeps Discovery+ for customers who are happy to pay $5 or $7 for Discovery-only programming. Perrette said the company doesn’t “want to leave any of its profitable subscribers behind.”
Zaslav also hinted at the free ad-supported service from Warner Bros. Discovery, which the company said arrives later this year.
Warner Bros. Discovery could also have kept HBO Max. For customers who wanted both Discovery+ and HBO Max, it could have offered a bundle at a discounted price. This is Disney’s strategy, which proposes grouped ways to mix and match Hulu, ESPN+ and Disney+.
Instead, the company has loaded up a service with everything it has, which can also optionally include CNN news and sports such as NBA or NHL games. Zaslav said on Wednesday he would have more details on that “in the coming months.” Remember that Zaslav killed off CNN+ as a standalone streaming option last year barely a month into its existence.
Warner Bros. Discovery is building Max as a unique option so that it has the scale to stay in a post-cable world that is coming faster and faster.
But Zaslav also tells investors he’s okay with limiting Max’s growth. Making money is more important to him than competing with Disney and Netflix to become the biggest streamer in the world.
It’s a delicate balance: disney, Global Paramount, Comcastfrom NBCUniversal and even netflix are all fighting the same forces. Investors looked to continued streaming growth at all costs last year, halving the valuations of many media and entertainment companies.
What is happening now is, at its core, a hedge. The media industry knows streaming is the future, but growth has slowed. Zaslav defended the value of the traditional pay-TV package while criticizing the former WarnerMedia regime’s overspending on streaming. He’s trying to give investors a new reason to get excited about Warner Bros. Discovery. This message, Zaslav hopes, is free cash flow generation.
David Zaslav, Chairman and CEO of Warner Bros. Discovery speaks with the media upon arriving at the Sun Valley Resort for the Allen & Company Sun Valley Conference on July 05, 2022 in Sun Valley, Idaho.
Kevin Dietsch | Getty Images
“At the end of the day, I’m a free cash flow guy,” Zaslav said Wednesday. “We want great talent, but ultimately if we don’t make money on the subs, if we don’t have ARPU [average revenue per user]we don’t help ourselves and we don’t help shareholders.”
There are indications he might be onto something. Shares of Warner Bros. Discovery have risen nearly 50% this year after falling about 60% last year.
But when you take a two-part name – HBO and Max – and keep only the Max, the implication is “big” compared to “quality”.
That was the message from AT&T. That was not Zaslav’s message until now.
WATCH: Full CNBC interview with David Zaslav, CEO of Warner Bros. Discovery
Disclosure: CNBC’s parent company, Comcast, owns NBCUniversal and co-owns Hulu.