The marriage between WarnerMedia and Discovery is not an easy one.
Warner Bros. Discovery (WBD) is still reeling from a rocky post-acquisition start earlier this year, which included heavy content cuts, debt and revenue loss.
The combined companies’ networks lost 8% in total Q3 revenue, including an 11% decrease in advertising revenue.
But within its streaming (DTC) business, which includes HBO Max and Discovery+, ad revenue doubled.
WBD also gained 2.8 million subscribers for the quarter, bringing its total to 94.9 million users.
Now, it’s bumping up the official launch date of its combined, ad-supported streaming service from summer to spring 2023. (WBD didn’t confirm pricing, other than confirming an ad-free and an ad-supported tier.)
“Advertising is by far the greatest variable impacting our financial performance for 2023,” said Gunnar Wiedenfels, chief financial officer of WBD (and previous CFO of Discovery) during the company’s quarterly earnings conference on Thursday.
Compared with DTC, ad sales seem to be tanking on linear. But for streaming, Wiedenfels said WBD has $10 billion in total advertising revenue, driven in part by DTC ad sales doubling this quarter. Wiedenfels noted that the company’s “inflection point” in DTC growth is the reason why it’s hurrying out its combined AVOD offering earlier than originally planned.
Lover’s quarrel
It’s no secret how many ad dollars there are in AVOD. Netflix rushed the launch of its ad-supported subscription tier for a reason, too.
But, according to David Zaslav, CEO of WBD (and previous CEO of Discovery), part of the combined company’s opportunity lies specifically in fixing some of WarnerMedia’s mistakes.
WBD pins most of its Q3 subscriber growth on recent content releases, namely “House of the Dragon” (HBO’s largest series premiere to date). The company is encouraged to have gained nearly three million subscribers off a platform that’s “not that great,” Zaslav said.
For one, WBD added post-roll content recommendation features on HBO Max, which led to much higher levels of engagement on the platform this quarter and is part of WBD’s strategy to reduce subscriber churn, Zaslav said.
WBD expects to have an additional few hundred million dollars on hand next year as a result of all this “course-correcting,” Wiedenfels said, which largely includes its decision last spring to scrap CNN Plus.
There’s plenty of press about WBD cutting content available on HBO Max, Zaslav said, but “we haven’t taken one show off of a platform that would’ve helped us in any way.” Content production and licensing can be a “business of failure” at times, he added. But that risk can be offset by reallocating dollars to shows that are more likely to perform better.
Still, HBO Max is blatantly overrepresented in the company’s recent cuts to its programming slate.
It’s also probably not a coincidence that WBD no longer disaggregates HBO Max and Discovery Plus subscription reporting. (What’s going on back there?)
The WBD relationship is clearly one with a power dynamic, but, hey, growth is growth.
WBD is relying heavily on the future success of its combined AVOD subscription launch, which should keep the company on track to bump its total ad revenue up to $12 billion come next year, Wiedenfels said.
Jean-Briac Perrette, president of Discovery’s streaming business, also alluded to a subscription price increase following the official AVOD launch in 2023.
Next year will mark three years since HBO Max launched, and it has not raised its price during that time, which is an opportunity to “move north of where prices are today,” he said.
Still, there’s a lot left to be seen.
Combining two major media companies and their ad sales teams is “messy, challenging work,” Zaslav said. But in three to four months, “you’ll get a much clearer picture of exactly what this company is,” he told shareholders.
