Insights

Discovery Q2 2021 Earnings: Bundle power

4 August, 2021
Property Brothers

Barring any federal interference, Discovery and WarnerMedia are set to join forces sometime in the future — and demand for both companies programming demonstrates the potential lucrative outcome of said merger. 

Discovery+ is already scaling at a healthy rate, and joins a growing slate of Discovery Network services that boast 18 million subscribers. Combining a slate of heavily in-demand programming, low subscription costs to help ease the barrier of entry, and major events like the Olympics in certain European countries, Discovery+ has quickly found an audience. 

While Discovery+ is less of a general entertainment streaming service than competitors like Hulu and Netflix, when Discovery completes its merger with WarnerMedia, the combined companies will control the second largest demand share of original content, broken down by corporate ownership, in the United States. The only company with a higher demand share across its entire corporate catalog is Disney. 

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Although Discovery CEO David Zaslav hasn’t shared any new information on what will happen with Discovery+ and HBO Max once the merger is complete, combining the two services as part of a slightly cheaper bundle than paying for both individually makes the most sense. Much like how Hulu, ESPN+, and Disney+ (the “Disney Streaming Bundle”) all complement one another within a packaged offering, Discovery+ and HBO Max achieve the same goal. 

HBO Max centers on a combination of prestigious dramas and acclaimed comedies from the HBO side, classic films from TCM, and more general entertainment from the various WarnerMedia brands (Adult Swim, TBS, DC). Both platforms carry a good percentage of in-demand shows compared to competitors, but combined could become an undeniable offering for families and individuals. (Chart below measures Average Demand for Top 10 HBO and HBO Max shows in the United States in Q2)

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Discovery+, on the other hand, concentrates on unscripted content, blending lifestyle-oriented programming with infotainment. Food Network, Discovery, TLC, HGTV, and Investigation Discovery are just some examples of brands that consumers are willing to spend $5 a month on. Discovery+ also creates the perfect blend of snackable television and passive viewing for anyone looking to put something on while cooking, exercising, working, or trying to fall asleep. Demand isn't as high as HBO and HBO Max series, but the top 10 shows this last quarter all fell into the outstanding category. (Chart below measures Average Demand for Top 10 Discovery Network shows in the United States in Q2.)

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The industry is in the middle of consolidation and acquisitions, all trying to boost the overall share of demand for catalogues on streaming platforms that subscribers use. 

In some cases, that’s acquiring independent production houses like Reese Witherspoon’s Hello Sunshine to create content for a plethora of companies. This is the arms dealer tactic. In other cases, it’s trying to control as much of the demand share as possible through offering the largest catalog; Discovery merges with WarnerMedia, Disney acquires Fox, and ViacomCBS potentially finds a way to partner with NBCUniversal, as reports suggest. 

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These libraries will rely on new originals, exclusive licensed material, and non-exclusive licensed content. The higher demand for originals and exclusively licensed material, the more likely it is that customers will subscribe to a platform, or remain subscribed because their demand is being met.

If demand for Star Wars and Marvel remains high, there’s typically only one place to get all of that content instantaneously. Same with HBO Max or Discovery, which effectively leverages its cable components as exclusives for its streaming platforms. 

Demand for exclusive licensed series greatly outweighs demand for non-exclusive licensed series on HBO Max and Discovery+, as seen in the chart below. That’s different than Hulu, Peacock, Paramount+, and Amazon Prime Video, where demand for non-exclusive licensed content outpaces demand for originals and exclusively licensed programming. If HBO Max and Discovery+ are combined through a bundle — possibly tossed in with CNN+ — demand for exclusively licensed content grows. 

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Discovery+ will be key to a bundled package, if that’s what the company decides to do going forward, and having in-demand originals is key to making the package a necessity instead of just another option. With plenty of independent studios looking to sell unscripted, informative originals, Discovery could acquire the exclusive licensing rights to those programs to build up its originals base. 

Discovery and WarnerMedia’s catalogues compliment each other very well, but there are many players in the industry trying to figure out similar moves. Demand for Discovery+ originals is lower than others, and that’s an area that executives will have to figure out going forward.

As it stands right now, however, Discovery+ and HBO Max are continuing to grow their subscriber bases and demand for content across both platforms is increasing each quarter. The programming is undeniably complimentary and, while it may not bridge two different consumer groups the way Disney’s acquisition of Fox has (families and adults, across Disney+ and Hulu), it’s the type of combined assets that makes Discovery+ and HBO Max go from possibilities to an appealing global SVOD offering. 



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