Launching an online streaming video service to compete with Netflix
At Liberty Media’s 2022 Investor Day on November 17, media mogul (and member of the Board of Directors at Warner Bros. Discovery) John Malone rejected negative media coverage of Warner Bros. Discovery David Zaslav, stating, “As far as streaming video goes, he said, Let’s face it. Everyone went for this mad Oklahoma land rush of streaming…That was a fool’s errand,” he said.
He pointed out the fact that Zaslav’s pay, widely criticized in the press was as being too high, was mostly a function of stock options. If the stock went up, so did his pay, if it went down, it could evaporate to close to nothing. Regarding the streaming competitive market, Dr. Malone had this to say:
“I think everybody I know is is taking a hard look at their content budgets going forward and trying to be more targeted in terms of what audience they’re after and not try and have everything for everybody perhaps. So you might see some specialization that leads to profitability earlier for segments for subsets. I, you know, I’m a believer in an ala carte menu for the consumer. But I think if you’re going to keep churn down you have to bundle. It would appear that Disney’s approach is to bundle internally. In other words, have three or four services streaming that you can combine and try and satisfy a broader household. But all internally, there may be opportunities for streamers to bundle with other streamers.”
One of the victims of this massive spending to compete in the streaming video market has been Warner Bros. Discovery, whose stock has fallen over 50% under CEO David Zaslav’s watch, and he revealed at the 2022 RBC Capital Markets Global Technology, Internet Media and Telecommunications Conference in New York on 11/15 that HBO spent $2.5 billion in 2019 and made a $2.5 billion profit. In stark contrast, in 2021 HBO Max spent $7 billion and lost $3 billion. That will change. “We are rightsizing HBO Max,” he said
“In the last couple of years, because Netflix got such a high multiple, everyone wanted to become Netflix,” said Zaslav. And so the content that was on these direct-to-consumer platforms, the amount that was spent on those platforms went up drastically, 2, 3, 4x. And then the price to consumer went down dramatically. That just doesn’t make sense,” he said.
Putting together Discovery+ and HBO Max, however, does make sense, he said. “We think if we can put these two products together, we have a premium at a price, we have an ad-light so HBO Max or whatever we call it, and then HBO Max ad-light, that we can have a really compelling menu of content that could provide real value,” he said.
He also talked about adding another online service that would be free. “We’ve seen the success of Tubi, we’ve seen the success of Pluto and AVOD (Advertising Video On Demand). We have a huge advantage because we have the largest TV and motion picture library in the world. We can create a Tubi or a Pluto. But instead of buying content from someone else in order to populate this AVOD, we can just use our own content,” said Zaslav.
On the company’s fiscal third quarter earnings call on November 3, Zaslav noted that the company was still investing in expensive content for HBO Max, signing a long-term contract with Matt Reeves, who co-wrote and directed The Batman and created the upcoming new series, The Penguin, for HBO Max.
And their longtime partner, Chuck Lorre, is producing his first series for HBO Max, a comedy entitled How to Be a Bookie starring Sebastian Maniscalco. To try to offset this high-cost content, however, they are going to start airing Discovery+ content on HBO Max, starting with select Magnolia Network shows such as Fixer Upper: The Castle.
Zaslav reiterated their goal of making $1 billion of EBITDA (Earnings Before Interest, Depreciation and Amortization) from streaming video by 2025 and also emphasized the danger of having all of your eggs in one basket. “One of the concerns was you’re so diversified, when really rather, you’d be like Netflix, just a streaming service. That didn’t work. People collapsed the entire motion picture window on the streaming services. I’ve seen the data. Maybe it works for someone else,” said Zaslav.