2022 marked a year of changes for Warner Bros. Discovery while it worked to find cost savings and integrate newly merged WarnerMedia and Discovery into a single, more efficient company.
That included restructuring charges and news-grabbing content write-offs, as the company undertook a strategic content review as part of its broader post-merger cost savings effort. As a result WBD canceled certain projects (such as Batgirl), stopped producing HBO Max originals in several European countries, and pulled content including “West World” and “The Nevers” from HBO Max to find homes elsewhere (which saves money on residuals while generating syndication revenue, as noted by TVREV’s Alan Wolk).
But with 2023 upon us, much of that work is now behind the media company, according to CFO Gunnar Wiedenfels.
“The beginning of 2023 really marks the beginning of a new chapter for us. We're closing chapter one, we're opening chapter two,” Wiedenfels said Thursday at the Citi Communications, Media & Entertainment conference.
In terms of content write-offs in 2022, Wiedenfels noted WBD received “a lot of public noise,” which he said is “a reflection of an industry that went overboard and that went on a spending frenzy.”
Instead of taking an always more approach, WBD has been working to take stock and zero in on what works, while also not rushing the process.
“We took a little bit of time to make sure that we do it properly. For some of the titles we found new homes elsewhere…that’s why this took six, seven months,” he said. “But I think we’ve come to great solutions and most importantly, we’re done with that chapter.”
However, that may not be the case for other players. Wiedenfels said WBD has “right sized the content spend again” and suggested other companies will need to make similar assessments as they think about spending.
“We shaved off a lot of the excess last year, and I think that’s something that everyone else in the industry is going to go through,” Wiedenfels said, addressing industry content spending. “We’re coming from an irrational time of overspending with very limited focus on return on investment and I think others are going to have to make some adjustments that we frankly…have behind us now.”
In October WBD disclosed expectations for up to $4.3 billion in restructuring charges, including $2 billion - $2.5 billion from content and development write-offs related its strategic assessment of content programming. In a December 14 filing with the SEC, WBD revised its original 8-K estimates, now expecting $2.8 billion to $3.5 billion of content impairment and development write-offs.
That doesn’t mean WBD doesn’t plan to spend on content in 2023. On Thursday the finance chief said to expect twice the theatrical output, as well as more games, but indicated WBD will be selective on how it chooses to spend – leaning on large amounts of data gleaned from its broad range of distribution points to help inform decisions.
“I think we have a huge advantage in the enormous amount of data from all the different consumer touch points that we have,” Wiedenfels commented. “I think we’re going to get a lot better in allocating capital and we have every intention to continue spending. Content is the lifeblood of this company.”
Recent research from Ampere Analysis projects global growth in original content spending will be at its lowest in a decade, excluding a pandemic-driven slump in 2020, increasing by just 2% year over year in 2023 – compared to a 6% growth rate in 2022. Still Ampere anticipates WBD will be a leading spender, only behind Disney, with investment that exceeds $9.5 billion.
It’s also clear that WBD isn’t set on keeping everything exclusive to one medium or platform as it looks to make the most of linear networks, streaming services, theatrical output and a massive library of IP. Teams that may have been siloed previously are now willing and able to cooperate and discuss to play around with programming and windowing strategies, and according to Wiedenfels, for the first time “to bring together all the data that we have and all the knowledge that we have” in terms of knowing what works, which demos are over indexed, and so on.
Bringing different elements of data together can provide for “an enormous amount of flexibility,” he said, in terms of what, where and how WBD chooses to program.
“And you’ve seen in some of our decision making already that we’re willing to take that perspective and make rational decisions, and we don’t have to have everything, every last title fully exclusive. There may be other ways to monetize internally, and…at times externally as well,” he said, adding that WBD is willing to run the numbers and form a strategy to make those decisions.
WBD is targeting $3.5 billion in post-merger cost savings over three years, of which it expects to realize $2 billion in 2023. Wiedenfels said ideas are still being added to the funnel and he has “full confidence” in at least $2 billion of additional value capture.
A major change will come this spring when the Discovery+ and HBO Max streaming services combine into one yet-to-be-named service (though reports have pegged “Max” as the frontrunner). While WBD has said the service will launch in spring 2023, details around exact timing and pricing haven’t been disclosed, though it expects to offer a premium ad-free as well as ad-lite option.
When the new service does debut, keeping churn down is a key priority and Wiedenfels said a dedicated team is focused on how to manage the transition for various types of existing HBO Max and Discovery+ subscribers to make it as easy as possible.
“I’m confident we’ll manage that appropriately,” he noted.
In addressing a question about ARPU concerns for the streaming industry, Wiedenfels suggested pricing has been too low, partly fueled by a land grab for easily accessible capital and a focus on subscriber growth. He pointed to a number of streamers gradually bumping up prices over the past few years and believes there’s a growing consensus that a phase of “dumping pricing is over.” And he indicated the forthcoming combined streaming service could be priced higher.
“We will with the combined product bring something to the market that I have no doubt is going to be the best streaming product in the marketplace, and we’re not priced at that level right now in the U.S., more so internationally,” he said.