Warner Bros. Discovery to combine streamers next summer, considers ad-supported offering

Dive Brief:

Warner Bros. Discovery announced that it plans to combine HBO Max and Discovery+ into a combined streaming offering under a single brand beginning in the U.S. next summer, per the company's first full earnings call since the two companies merged this year.
In addition to its subscription video-on-demand (SVOD) service, the company is exploring making some of its library available on a free, ad-supported TV (FAST) platform, per the call. Details on all streaming offerings is expected at the company's Investor Day, planned for later this year.
Warner Bros. Discovery's combined platform and possible FAST service are expected to further complicate a streaming landscape that has seen major players make plans for ad-supported tiers. The subscriber base for HBO Max and Discovery+ is 92.1 million, up 1.7 million over the first quarter, per the company’s earnings report.

Dive Insight:

Warner Bros. Discovery has teased plans for a combined HBO Max and Discovery+ streaming service since before Discovery's acquisition of WarnerMedia from AT&T, and has kept details close to the vest, both at the company's first combined upfront and now during its first full earnings report as a merged company.

The summer 2023 date gives the advertising industry some time to prepare for what will be a major player in the streaming wars. The timeline will also give Warner Bros. Discovery time to iron out shortcomings with both services, noting HBO Max's performance and customer issues and the limited features of Discovery+ on the call.

"Our team has developed a clear road map to migrate onto one tech stack, leveraging much of the core infrastructure of the highly rated Discovery+ service with significant and important feature enhancements from the more established HBO Max," said Jean-Briac Perrette, the company's CEO and president of global streaming and games. "This will, in turn, enable us to meaningfully reduce churn, support gross adds and increased monetization, particularly with our ad-light offering."

New to Warner Bros. Discovery's plans is the potential for a FAST service that could come once the newly combined SVOD is firmly established in the market. While the company currently licenses some of its content to such services, launching a free, ad-supported platform would help the company derive more revenue from its library from consumers facing subscription fatigue. FAST channels are a growing part of the streaming landscape and are a promising ad channel for advertisers. Nearly half (44%) of FAST channel viewers show high TV ad receptivity, with 69% saying that such channels are more relevant and targeted to their interests, per an LG Ads Solutions report shared with Marketing Dive.

Offering ad-free, ad-light and ad-supported platforms is part of a Warner Bros. Discovery strategy focused on consumer choice, rather than a streaming-only strategy around "overpaying for and over investing in content and offering it all at the same time for a low price," Perrette explained, in a likely shot across the bow at competitors like Netflix.

"We believe there are multiple global consumer segments in streaming, just like there have been for decades in traditional television. Some who are willing to pay a premium for an ad-free experience, others who are more price-conscious and prefer to pay less with limited advertising, and a sizable third group who will not pay a subscription fee and only want to enjoy ad-supported entertainment," he said.

Warner Bros. Discovery is far from the only company that sees the opportunity for ad-light and ad-supported entertainment. Netflix plans to launch an ad-supported tier in early 2023 after recently naming Microsoft as its exclusive ad-tech and sales partner. Earlier this year, Disney+ also announced plans to launch an ad-supported tier in late 2022. This next phase of the streaming wars is expected to offer opportunities and challenges for advertisers already facing a fragmented video landscape.

HBO Max and Discovery+ saw total subscribers increase by 1.7 million to 92.1 million in the quarter. The company hopes to make its streaming business profitable in 2024 with a total subscriber base of around 130 million global subscribers, per the call.

Apart from streaming, Warner Bros. Discovery reported a 2% increase in advertising revenue, with strong demand for sports advertising partially offsetting lower news, kids and general entertainment performance in the U.S. The company bills itself as the fifth broadcast network due to its wide-ranging portfolio, low- to mid-teen CPM increases and nearly $6 billion in upfront commitments.