Warner Bros. Discovery on Thursday detailed plans for its forthcoming streaming service that will combine the HBO Max and Discovery+ platforms.
It was the first time executives shared strategic plans for the new service, which had been anticipated as WarnerMedia and Discovery officially merged earlier this year. The new SVOD service will be offered under a single yet-to-be announced name brand. It will feature an ad-free and an ad-lite version (WBD is also exploring launching a free ad-supported streaming TV (FAST) separate from a premium SVOD). Details on pricing weren’t disclosed.
On the company’s second quarter earnings call, Warner Bros. Discovery CEO and President of Global Streaming and Games JB Perrette laid out a phased launch timeline for the streaming service, which is first expected to roll out in the U.S. in the summer of 2023. Launches in Latin America will come later in the fall of 2023, followed by rollouts in Europe in early 2024 and APAC in mid-2024, with new European markets targeted for the fall of 2024.
That timeline could be sped up once more testing and development work happens, he noted.
“In addition, there will still be significant opportunity for expansion beyond this, as these 70+ countries represent less than 60% of broadband homes globally excluding Russia and China,” Perrette continued.
Warner Bros. Discovery is targeting 130 million global DTC subscribers by 2025, reflecting the addition of 40 million incremental subs from it’s current base.
In bringing both platforms together Perrette highlighted WBD’s view that the two services are unique and complementary. HBO Max skews toward males, with interest in premium scripted content like “Succession” and a lean-in experience, serving home to fandom franchises such as “Batman,” “Game of Thrones” and others. Discovery+, meanwhile, skews more female, with a strong slate of unscripted shows such as “90-day Fiancé” serves as a home of “genredoms.”
The two services are also different in how viewers engage, Perrette said, with HBO Max attracting more “appointment viewing” that drives subscriber acquisition, with Discovery content catering more to “comfort viewing” that drives subscriber retention and longer watch times.
“These are two critical and powerful components of a strong and sustainable subscription business,” Perrette said. “Couple this with our world-class collection of globally recognized brands, franchises, series and characters, it is truly an unprecedented combination.”
Content on the combined platform will span drama, comedy, documentary, factual, lifestyle, reality, local global content and sports in Europe and Latin America, as well as movies.
Ahead of the launch, he said WBD will introduce interim initiatives, including content sharing. That’s first seen with an announcement Thursday morning that the company will be adding a CNN hub on Discovery+ starting August 19, featuring a curated content of CNN original library content. Later this fall, HBO Max will start hosting content from the Magnolia Network featuring Chip and Joanna Gaines.
Combining best of product features, address shortcomings
Bringing both services together under a single brand umbrella, Perrette acknowledged that both HBO Max and Discovery+ products each have their shortcomings.
HBO Max has a competitive feature set but has had performance and customer issues, he said. Discovery+ meanwhile has best in class performance and consumer ratings but is more limited on the feature front.
“Our combined service will focus on delivering the best of both. Market-leading features with world-class performance,” Perrette continued.
He said the team has created a clear roadmap to migrate onto one tech stack, leveraging most of the core infrastructure of the Discovery+ service and the feature enhancements from HBO Max.
The result will enable better content discovery and personalization, coupled with quality content, to help drive the leading objective of growing engagement.
“This will in turn enable us to meaningfully reduce churn, support gross adds and increase monetization, particularly with our ad-lite offering,” Perrette said.
As it’s the early days, he added that “there’s much work to be done in the coming months.”
On the financial side, WBD expects the most significant EBITDA losses associated with the new product to occur this year. It’s targeting a 2024 timeline for the U.S. product to achieve break even, with a $1 billion EBITDA goal for the direct-to-consumer segments by 2025.
“The combination of HBO Max and discovery+ could not come at a better time as both are enjoying strong momentum,” said Perrette.
At the end of the second quarter total direct-to-consumer subscribers for WBD (including HBO, HBO Max and Discovery+) stood at 92.1 million – marking an increase of 1.7 million global subs since the end of Q1.
Warner Bros Discovery adjusted the definition of its DTC subscribers – which resulted in excluding 10 million Discover non-core subscribers and unactivated AT&T mobility subscribers from the Q1 comparison count.
Proforma combined results show total DTC revenues were $2.4 billion in the quarter, up by 4%. Distribution revenues totaled $2.16 billion, up 1%. In the period, year over year subscriber gains for Discovery+ and HBO Max were largely offset by domestic lower wholesale subscribers as an HBO Max and Amazon Channels expired in September 2021.
Advertising DTC revenues were $97 million, mainly driven by the launch of HBO Max’s ad-supported tier in June, and subscriber growth on the Discovery+ ad-lite tier.
While revenue was up, combined proforma DTC costs of revenue jumped 33% to $2.07 billion, mainly from increased investment in programming expenses to support the streaming services and new market launches in the past year. Total proforma combined revenues totaled $10.8 billion, with adjusted EBITDA of $1.76 billion. Warner Bros. Discovery reported a net loss of $2.14 billion.