So, Gunnar and Zaz blinked.
Instead of mashing Discovery Plus and HBO Max into a single service, and killing off the smaller platform altogether, the Warner Bros. Discovery executives will keep Discovery Plus around for those who need all the unscripted programming you could ever watch.
The company will also continue to develop a mashup of the two streaming services, with some programming from each, The Wall Street Journal reported.
In surveying its options, the WBD brain trust led by CEO David Zaslav and chief financial officer Gunnar Wiedenfels clearly realized that one plus one here wouldn’t equal three, or maybe not even two. But it’s also not clear that launching a third, completely new service will be anything but an expensive and distracting waste of time for a company already laboring under $48 billion in debt.
For clues about what’s good and bad about the WBD decision, it’s worth looking at the week’s other big news, The Walt Disney Co.’s quarterly earnings and where it’s headed now that Bob 1, Bob Iger, is back as CEO.
Most of Iger’s announcements Thursday could have been predicted weeks, if not months, ago. Indeed, many of the changes were initially proposed by Bob 2, former CEO Bob Chapek, before his pre-Thanksgiving cashiering. Iger attached (very) hard numbers to Chapek’s announcement: 7,000 layoffs and $5.5 billion in spending cuts, including $3 billion less on programming.
Conversely, Iger made other numbers disappear, like all those nasty extra fees at the theme parks or Chapek’s ill-advised tripling of subscriber goals. Weirdly, an increasingly enthusiastic Wall Street also seemed indifferent that Disney Plus lost 2.4 million subscribers in the quarter. Such is the special magic of Bob 1. Now, Iger’s company is all about return on invested capital, and the Street cheers.
More importantly, as Iger made clear, it’s all about where Disney spends money to drive higher revenue on invested capital.
Iger told CNBC after the call that he didn’t see much value in general entertainment in a streaming era. There’s no pricing power there, because people can get something like it in lots of other places (more than ever, now that Disney and others are licensing older shows, even to AVOD/FAST networks they don’t own).
Back in the old network-TV days, limited viewing options meant every network had to have a little bit of everything. But the sitcoms, police procedurals and reality competitions weren’t that different from network to network. And it didn’t really matter. Where else were audiences going to go?
That’s not the case anymore. Audiences have choices, and rising churn rates suggest they’re exercising those choices a lot.
So what makes your block of undifferentiated legacy general-interest programming better than the next company’s? Not much. Consumers can barely remember the names of media companies, never mind which streaming services they own, or what moderately sought-after show is running where and when.
How to survive? Evidence increasingly suggests (and Iger maintains) that getting more specific is the likely recipe for success. Your service needs to stand for something.
Admittedly, Bob 1 gets to say stuff like this because Disney owns a big batch of highly differentiated, non-general content (Marvel, Star Wars, Pixar, Disney Animation, ESPN). He also runs the only Hollywood media company whose brand means anything to Juan and Roberta Consumer and their lovely young family.
But Iger’s brief comments have many implications, beginning with Iger firing the starter pistol on negotiations over What to Do With Hulu, a pressing question that also affects Comcast, Peacock, Pluto TV and any unlikely third party that might enter the fray.
Because when you think of broad, undifferentiated content, what do you think of? I mean, besides Netflix, which differentiates by having lots more of everything, for just about everyone, everywhere on the planet, all at once?
The other answer here is Hulu, which is everywhere in the U.S. TV ecosystem, but has no global reach, one-fourth the subscriber base, and a less-than-encyclopedic array of shows. By Bob 1’s stated measure (possibly made for negotiating purposes), Hulu may not be worth that much.
This question matters for a Max mashup, too. There is, by all accounts, not a huge overlap between the audience of coastal elite snobs who pay $16 a month for HBO/HBO Max’s Emmy magnets and the lowest-common-house-flipperator fans who pay $7 per month for Discovery Plus.
Sustaining the status quo, keeping both services as standalone offerings, may be OK, given WBD’s straitened circumstances. But launching a third product with bits of programming from both, along with a possibly lame new brand like “Max,” seems a perfect recipe for market confusion and an expensive waste of time and money.
We already have an overcrowded, unprofitable market where most insiders (and consumers) agree there should be fewer services, not more. Most competitors are leaning hard into bundles of either just their services or with wireless carriers and other obvious partners.
As Needham & Co. analysts put it in a Disney research note on Thursday: “Iger's most intriguing idea (to us) was his observation that technology has shifted authority away from the producers and distributors of content to the consumer. We agree that it's hard to make money if consumers can churn every month. Over time, we believe streaming companies will bundle (to lower churn), which will move authority back towards distributors and producers and away from consumers.”
WBD, however, hopes to educate a jaded populace on the benefits of yet another standalone service, built around a wildly unremarkable brand.
We should remember how things went when HBO Max launched two years ago (i.e., badly, for a long time). Zaz killed CNN Plus in its infancy. WBD doesn’t release subscriber numbers for Discovery Plus, possibly because they remain crummy. And many consumers still don’t understand the difference between HBO, the premium cable channel, and HBO Max, the online streaming service. Where does Max fit?
Adding yet another new brand in this market just feels … dumb. Remember what Bob 1 said about the declining value of generalized content offerings?
How about this as an alternative approach: focus on creating more highly specific, highly marketable programming, built on fewer, bigger franchises? Instead of spinning up a new brand, focus on building durable, unique identities for what you already have. Give fans exactly the experience they expect, so they’ll keep paying for it.
Iger and Disney are also pulling back from those fickle streaming audiences, the Needham analysts noted, in a “rebalance toward theatrical and linear TV where the economics are better and those audiences are additive to streaming audiences, which are typically younger.”
With no broadcast network, and cable networks that have been stripped of most original programming, WBD can’t do quite the same thing. The company has killed off numerous HBO Max originals, most notoriously with the basically finished feature Batgirl, in favor of tax write-offs and theater-worthy releases. It has a new team and strategy running perennial underachiever DC. And maybe Chris Licht will finally figure out how get CNN out of third place without an originals division or a standalone streaming service.
Then the WBD brain trust can wait until the spring of next year, when the deal-making prohibitions in the Reverse Morris Trust that birthed WBD expire. Comcast chairman and CEO Brian Roberts should expect a call, perhaps to set up some big, tax-free spinoff/merger/transaction/whats-it that makes board member/puppet master John Malone very happy and even richer.
Then Zaz can go buy another mansion, maybe Walt Disney’s old house in Burbank with the big train set in the backyard, and relax secure in the knowledge that he helped reshape Hollywood for a new and very different era than the ones Walt presided over, for good and bad. ■
