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Following last week’s news that Discovery’s shareholders approved its merger with WarnerMedia, which will create one of the largest U.S. media companies, there’s now a hint as to how this merger will impact the companies’ respective direct-to-consumer streaming services, HBO Max and Discovery+. This morning, Discovery CFO Gunnar Wiedenfels said the companies plan to combine the two streaming services into one offering. But given those changes will take time, they plan to offer some sort of interim solution sooner.
What that solution will look like, more specifically, is less clear.
“So right out of the gate, we’re working on getting the bundling approach ready, maybe a single sign-on, maybe ingesting content sort of into the other product, etc., so that we can start to get some benefits early on,” Wiedenfels said during his presentation at Deutsche Bank’s 30th Annual Media, Internet, & Telecom Conference on Monday.
“But the main thrust is going to be harmonizing the technology platform, building one very, very strong combined direct-to-consumer product and platform, and that’s going to take a while,” he said. The exec also noted that the companies will more immediately benefit from the ability to optimize marketing for the services, which he said is a huge cost driver at present.
The $43 billion merger — which is set to close in the second quarter now having received both U.S. and EU approval — will see the new Warner Bros. Discovery becoming a powerful media empire that brings together HBO/HBO Max, CNN, Warner Bros. (TV and film studios), DC Films, TBS, TNT, TruTV, Cartoon Network/Adult Swim, Turner Sports and more, with Discovery’s HGTV, Discovery Channel, Discovery+, Food Network, TLC, ID, Travel Channel, Animal Planet, Science Channel, OWN and others known to traditional cable TV subscribers. When the deal closes, the new media company will be run by Discovery CEO David Zaslav, and Wiedenfels will continue to serve the combined entity as CFO.
Speaking at the event this morning, Wiedenfels suggested the combination of the two streaming services would better reach both male and female demographics than the respective services did on their own.
“We have HBO Max with a more premium male-skewing positioning, and then you’ve got the female positioning on the Discovery side,” he said. “You’ve got the daily engagement that people enjoy with Discovery content versus sort of the event-driven nature of the HBO Max content. Take that together, I have no doubt that we will be creating one of the most complete sort of four-quadrant sort of old, young male, female product out there.”
Image Credits: Discovery
Wiedenfels also shed further light on the company’s thinking in reaching the decision to combine the services instead of bundle, as its long-term strategy. While he acknowledged Disney had been successful with its bundle so far, the company came to believe that putting “the complete firepower” — which includes “a 200,000-hour content portfolio” with valuable titles and new ones dropping quickly — into one solution was the best way forward to be competitive.
The two services already have solid subscriber figures on their own, with HBO Max reaching 73.8 million global subscribers and Discovery+ reaching 22 million by the end of 2021.
The combined service that will ultimately arrive would also most likely offer an ad-supported and ad-free tier, as HBO Max and Discovery+ already found success with that model, the CFO noted.
“That’s worked very well for us. I was glad to hear that Disney has come to the same conclusion,” Wiedenfels said. “There’s a certain part of the population that’s willing to pay the premium price. There is another part of the population that’s willing to pay a lower place and really doesn’t care about advertising.” He said these users don’t really consider a few minutes of ads a nuisance, which was a surprise to learn.
“So that’s going to be very likely the structure as we come to the market,” he said.
The timing to get a combined offering into the market is something the company says will take longer than weeks, but hopes will take months, not years, to accomplish.
Pricing for the future service is yet unknown, but HBO Max is $9.99 per month with ads or $14.99 per month without, while Discovery+ is either $4.99 or $6.99 per month, for its ad-supported and commercial-free tiers, respectively.
The streaming landscape has seen a bit of consolidation ahead of this merger, as the increasing competitiveness of the ecosystem seems to have had an impact on incumbents. Netflix, for instance, is seeing lower subscriber growth than it has in years. It’s now trying to add value to its service through the addition of mobile games as a way to boost and retain subscribers. Disney, meanwhile, is driving subscriptions by making its Hulu/Disney+/ESPN+ bundle a more attractive offering and making some of its pricier add-ons a part of its core bundle. Paramount+ also decided to combine services by adding Showtime to its direct-to-consumer service starting this summer.
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