So, now we know for certain that the plan calls for merging the HBO Max and Discovery+ streaming apps once WarnerMedia and Discovery Inc. officially become Warner Bros. Discovery.
According to Discovery CFO Gunnar Wiedenfels, who confirmed the leadership’s intention publicly for the first time, the apps are a match made in heaven, content- and audience-wise.
The reason: HBO Max is male-skewed and its event-driven nature lends itself to drawing in new subscribers, while Discovery+ is female-skewed, and draws daily engagement that translates to high retention. Discovery+'s audience is also older than HBO Max's.
Both ad-free and ad-supported tiers will be available, Wiedenfels also confirmed.
Sounds like a great combo from the new company’s business-model standpoint, all right. But what about consumers?
Sure, viewers have been clamoring for integrated solutions that allow easily accessing all of their favorite streaming apps, which makes continuing consolidation inevitable.
But it’s not going to be a cinch to come up with an offering that’s truly compelling to a broad range of consumers for a product with just two apps — and two that have divergent demographics and appeal, at that — with a price that supports a viable public-company business model. Particularly if we assume, as we should, that the goal is to achieve maximum incremental consumer revenue and profit per subscriber, which means increasing consumer as well as advertising revenue.
Assuming that Warner Bros Discovery can offer an integrated ad-tech environment that enables sophisticated audience analysis and buying capabilities — which would seem a given — the advertising side should be the less challenging of the two.
That is, if the combined platform is also offering scale and engagement sufficiently attractive to advertisers.
Wiedenfels noted that together, the two platforms will have nearly 100 million subscribers at the time the merger is complete. (That’s widely expected to happen in mid to late April.) Globally, HBO Max and Discovery+ finished 2021 with 73.8 million and 22 million subscribers, respectively. That's indeed pretty substantial scale -- though still far short of the so-far ad-free Netflix's 222 million and somewhat shy of Disney+'s nearly 130 million as of year-end 2021. Disney+, as we know, will now be offering a with-ads version.
Those large existing HBO Max and Discovery+ subscriber bases — combined with consumers’ heightened expectations for streamers — mean that “there’s greater risk” than a few years ago in tampering with a formula and that “very, very detailed and disciplined planning” will be required to succeed, Wiedenfels correctly summed up.
Warner Bros Discovery, he said, will prudently take its time to “harmonize” the two platforms’ technology and come up with the integrated product offering to optimize the user experience and draw — hoping to do so in months rather than years, but apparently willing to take it to a year or more if absolutely necessary.
In the meantime, the company is coming up with bundles to be marketed until a merged product is ready. No specifics provided as yet.
On the combined platform’s technical/consumer interface front, let’s assume that the company will invest as much talent, resources and time as necessary to create a seamless, compelling experience. Surely, that will include overcoming HBO Max’s inexplicably lingering problems, including crashes during peak demand for big shows and movies and, far too often, being forced to restart the app just to launch a program or new episode.
But what will the content interface and discovery process need to look like to make sense for two very different sets of content?
Moving onto marketing, pricing will of course be particularly crucial. HBO Max costs $9.99 per month with ads and $14.99 without, and Discovery+ costs $4.99 with ads or $6.99 without.
But coming up with prices for the combined streamer is not going to be a simple matter of adding the two together to offer a with-ads version at about $15 and a sans-ads version at about $22.
Even before inflation gut-punched consumers, they had become increasingly resistant to increasing their monthly streaming costs, and much more apt to add free streaming services, as well as reduced-cost, limited-ads versions of subscription-based video-on-demands.
Consumers' "optimal" price for a subscription-based video-on-demand/SVOD service is now $12, and the maximum is $16, according to Morning Consult research.
With its recent price hike, Netflix's basic price is just $15.50 and its top price is $19.99. But the lowest price is $9.99, and Netflix is basically a household fixture for its huge base of subscribers. How many more paid streaming products per month per household does that allow for? Maybe not as many as two years ago, especially in homes that are also spending $70 or more for services that provide live streaming and access to multiple streaming platforms.
Particularly with Russia’s invasion of Ukraine threatening to create food shortages as well as exacerbate inflation worldwide, and more free streaming options emerging weekly, even modestly priced new paid offerings will need damned compelling USPs to stay in the running when the big shakeout commences.
And let’s face it: Combining these two existing services — both of which are relatively new streaming versions of entrenched legacy TV brands — amounts to marketing a new product to existing subscribers, as well as to prospective ones.
If the two streamers’ opposite male/female audience skews mean more choice for advertisers with a combo app, it could also mean a risk of confusing or even alienating some subscribers on both sides.
On the other hand, according to Helixa, an AI company that analyzes the connections that people make through their public social personas for insights development and audience segmentation, while Discovery+'s audience is 68.3% female, HBO Max's is actually 50.6% female. Further, 31% of Discovery+'s audience are also fans of HBO Max, and people who currently subscribe to one or the other of these services are about five times more likely to be "fans" of the other service than people who currently subscribe to neither.
But the bottom line is, what, exactly, is the value proposition for the consumer in combining these two apps, and what will it take (and how much will it cost) for Warner Bros Discovery to convey that effectively?
If the key to retaining and attracting new subscribers for an offering featuring the two very different apps is significantly discounted pricing compared to their existing prices, will advertising drive enough revenue and profit to more than compensate?
While management has said that the combined company will realize $3 billion in operating costs through consolidation, if part of the strategic plan is also to cut content costs — Wiedenfels said it will take a “conservative” approach to content spending — will HBO Max reduce the high-quality, costly “events” that admittedly drive the brand? What does that mean for subscriber retention and its value as a new-subscriber draw for the combo app? (Even now, what percentage of new HBO subscribers cancel after the event show or movie is watched?)
Those are only a few of the issues that will have to be wrestled with over the coming year if this much-scrutinized new company is to prove itself with subscribers, advertisers and, ultimately, shareholders.