Warner Bros. Discovery Plans Summer 2023 HBO Max - Discovery+ Merger, Followed By FAST Launch

During its eagerly awaited Q2 earnings call, Warner Bros. Discovery (WBD) revealed a summer 2023 target date for unveiling a still-nameless merged HBO Max – Discovery+ streamer; a plan to launch a free, ad-supported streaming TV (FAST) service; and a plan to create a team to develop a 10-year plan for its DC comics franchise, among other news.

The financials for the quarter — the first reflecting the newly merged entity’s combined WarnerMedia and Discovery numbers — fell far short of analysts’ expectations. Citing a slowdown in advertising, including the TV scatter market, as one contributor, WBD lowered its EBITDA (interest before interest, taxes, depreciation and amortization) targets for 2022 and 2023. Shares dropped by nearly 11% in after-hours trading after Thursday’s call.

Subscriber-wise, WBD reported a combined global total of 92.1 million across all of its streaming services, up 1.7 million from Q1. While it added 2 million subs internationally, for a total 39.1 million, it lost 300,000 in the U.S. and Canada, for a total of 53 million.

Regarding a decision on a brand name for the merged HBO Max/Discovery+ subscription-based video-on-demand (SVOD) streamer, CEO David Zaslav said that “more and more people” are telling WBD that HBO Max is “the place that has the highest quality.” He added that the company continues to talk to consumers and evaluate the specifics for the merged streamer.

However, CFO Gunnar Wiedenfels cautioned that “there’s a difference between what the service may eventually be called or not versus what HBO is.”

Following its U.S. launch, the merged SVOD will be rolled out to Latin America later in 2023, with Europe and other markets following in 2024. WBD is projecting U.S. profitability for the streamer by the end of 2024, and 130 million subscribers by 2025 — up from a current combined 92 million.

WBD reiterated that there is little overlap between the current subscriber bases of HBO Max, which focuses on high-end original content, and Discovery+, which is dominated by reality TV shows.

The combined SVOD — which will be launched with a “big, noisy” marketing campaign — will offer the full, “complementary” libraries of both existing services, but use Discovery’s interface/tech stack, which has garnered more positive consumer reviews than HBO Max’s, reported JB Perrette, president and CEO of Discovery Streaming & International.

Prior to the earnings call, WBD gave a first look at content sharing, announcing that some original CNN programming will be added to Discovery+ and that “Fixer Upper: The Castle” will launch in October concurrently on HBO Max, as well as Magnolia Network and Discovery+.

Zaslav confirmed WBD’s pivot away from former HBO Max owner AT&T’s strategies of driving streaming subscriber growth with day-and-date movie releases and made-for-streaming movies. Overall, WBD’s strategies will reflect streaming’s importance while eschewing overdependence on that platform, he emphasized.

“We will fully embrace theatrical as we believe it creates interest, and demand provides a great marketing tailwind and generates word-of-mouth buzz as films transition to streaming and beyond,” he said.

Perrette underscored that WBD’s analyses have found that investing in costly straight-to-streaming content makes no financial sense.

Earlier this week, news broke that WBD was shelving “Batgirl,” a $90-million, nearly completed movie made for HBO Max, along with a new Scoobie-doo movie, and removed several existing direct-to-streaming movies from HBO Max.

Perrette said WBD will continue “healthy” content investment for the SVOD, but at a “more measured pace.”

“Owning the content that really resonates with people is much more important than just having lots of content,” declared Zaslav. “At a time when almost every piece of content ever made is available to consumers across any number of free and paid services, curation, quality and brand have never been more important.”

WBD will wait until after the merged SVOD is “firmly established” to launch a FAST, said Zaslav, who described adding the free platform as being part of the company’s “diversified” approach to streaming.

Perrette said that there’s “much to be done” in preparation for that offering, including reevaluating current deals that license content to free, ad-supported video-on-demand services. “We are determined to get it right, which will take a bit of time,” he stressed.

WBD also announced that it will seek to ensure sustainable, long-term growth for its DC comics movies franchise via a restructuring and a 10-year plan that will be “very similar” to Disney’s successful strategy for the Marvel Cinematic Universe, Zaslav reported.

“As part of that, we’re going to focus on quality,” he said. “We’re not going to release any film before it’s ready. We’re not going to release a film to make the quarter.” WBD is currently working on several DC movies, including “Shazam 2,” “Black Adam” and “The Flash,” he confirmed.

WBD reported a second-quarter loss of $3.42 billion, or $1.50 a share, including a $1.5-billion loss for the streaming division, $1 billion in restructuring charges and $983 million in merger transaction and integration costs. Analysts had expected a loss of 23 cents per share.

Q2 revenue of $9.83 billion missed analysts’ expectation of $11.8 billion. On a pro forma basis, revenues were down 3% from the combined revenues of the two companies during Q2 2021.

WBD lowered its 2022 EBITDA forecast to be between $9 billion and $9.5 billion and 2023 EBITDA to $12 billion. That's compared to a 2021 EBITDA for the combined companies of $10.7 billion and guidance when the deal closed that EBITDA would be $14 billion in 2023.

The earnings call's biggest surprise did not come in WBD's partial disclosures about plans for HBO and Discovery+, but in the "increasingly grim financial situation of the combined company as a whole," opined Puck's Matthew Belloni. "A $2 billion decline in projected EBITDA for 2023, a worsening outlook for the linear networks, and, of course, that $50-something billion in crushing debt."

"All entertainment companies are in a weird place right now, caught between the cratering TV business and the Great Netflix Correction," Belloni elaborates. "But WBD, despite all its great assets, is in an especially weird place because of its financial situation. Meaning that while Peacock might be losing nearly a half a billion dollars a quarter for Comcast, and Disney’s direct-to-consumer division bled $887 million, those companies haven’t been bought and sold multiple times in the past decade. And they’re offsetting the streaming losses with broadband and theme park profits. WBD is both smaller and more dependent on television/streaming revenue."

Next story loading loading..