Warner Bros. Discovery reports earnings Friday morning, looking to tout its upcoming ‘Max’ platform in the midst of a writer’s strike, heavy debt load, and continued macroeconomic headwinds.
The company’s path to long term viability lies in executing the Max relaunch, more efficiently tapping its existing franchises like the DCU, Harry Potter and The Lord of the Rings, all of which would help set up M&A action with a competitor in the coming year or two.
Scaling Phase One: Max
The upcoming Max rebrand is a crucial part of CEO David Zaslav’s content optimization strategy heading into the rest of 2023 and beyond.
Adding the majority of Discovery+’s content with HBO Max is a cost-effective short term scaling effort that should put Max on the level of Netflix and the Disney bundle as a top three general entertainment streaming option.
In fact, Parrot Analytics data shows that Max is poised to immediately overtake Netflix as the SVOD with the highest total catalog demand with US audiences. Discovery+ series will be new to most HBO Max users and are largely WGA strike-proof. They could prove to be a highly valuable asset if the strike lasts into the late Summer or early Fall.
Scaling Phase Two: Franchise Expansion
Warner Bros. Discovery has a relatively underutilized, albeit very expensive, scaling strategy that has worked wonders for its competitors: fully tapping current IP into exclusive content on its own platforms.
Placing James Gunn as the co-head of DC Studios should help the parent company maximize this IP’s value long term. While Gunn was not involved in The Flash, early indicators bode well for this movie, which will effectively launch the new regime’s 10 Year Plan. Footage from the movie was well received at CinemaCon, and The Flash has seen higher global pre-release demand so far than other Summer 2023 blockbusters from the Spider-Man, Transformers, Indiana Jones, and Mission: Impossible franchises, per Parrot Analytics Movie Demand data.
Zaslav has also announced preliminary efforts to expand two relatively dormant franchises with proven high value IP: Harry Potter and The Lord of the Rings. This is the exact kind of IP that is ripe for expansion into new series and movies. If executed correctly it can both bring in new fans while also tugging at millennial heartstrings. Several examples of this strategy succeeding include Disney+ using the MCU and Star Wars to build a massive subscriber base, and Paramount+ doing the same thing with Star Trek and Taylor Sheridan’s series.
The key question in executing these franchise expansion plans is: who can pay for all this? Well…
Scaling Phase Three: M&A
Warner Bros. Discovery is now just a year away from exploring its M&A options. Corporate Demand Share data and regulatory realities suggest a union with Comcast’s NBCUniversal could benefit both companies as they look to compete long term with Disney and Netflix.
The recent departure of ex-NBCUniversal CEO Jeff Shell positions Zaslav as the obvious choice to lead the combined entertainment assets. Comcast CEO Brian Roberts has made previous failed attempts to acquire both Disney and 21st Century Fox. Will the third time for Roberts finally be the charm with Warner Bros. Discovery?
Total Catalog Demand Share: US, Q1 2023
- Demand for original content drives subscription growth, but library content is key for customer retention. Total catalog demand share — demand for all movies and TV shows available on a service, both exclusive and non-exclusive — is a good indicator of which SVODs consumers are most likely to use as a default ‘streaming home.’
- This broader look at the streaming landscape reveals a clear Big Three when it comes to general entertainment services with US audiences, with Netflix (17.9%) in the lead, followed by Hulu (15.8%) and HBO Max (14.4%).
- This chart shows the immediate benefit of the upcoming Max platform. Adding Discovery+’s demand share onto HBO Max’s would give the combined platform 18.7% — leapfrogging Netflix as the primary platform for general entertainment streaming.
Top 25 Breakdown: Originals, Exclusives, Non-Exclusives
- A look at the makeup of each major platform’s most in-demand series shows HBO Max has more exclusive content on its top 25 than most other streamers. The majority of HBO Max’s top 25 series were either Max Originals or HBO Originals.
- Even though Zaslav is dropping the HBO name in an attempt to broaden Max’s appeal, HBO must remain the cornerstone of Warner Bros. Discovery’s scripted entertainment strategies.
- In Q1 2023, HBO original series accounted for three of the 10 most in-demand shows worldwide across all platforms.
- Newcomer The Last of Us was the number global one show last quarter, with 81.9x more demand than the average show worldwide. The number two show was Game of Thrones at 73.6x, which has enjoyed a revival in interest following the widely popular House of the Dragon spinoff, which finished Q1 2023 as the 10th most in-demand show worldwide at 55.0x.
Corporate Demand Share: US, Q1 2023
- Corporate demand share can assess which companies have the most valuable content to license. This analysis can effectively help value a conglomerate’s library content in aggregate, and serves as a proxy of long term streaming viability as well as licensing revenue potential.
- Warner Bros. Discovery remains in a strong second place in Corporate Demand Share (17.2%), behind Disney’s 20.0%, and well ahead of third place Paramount Global’s 12.5%.
- This puts the company in a strong position to leverage its high value library content for major licensing revenue as FASTs become an increasingly important driver of consumer attention.
- Consolidating platforms and expanding franchises should help Warner Bros. Discovery’s Corporate Demand Share tick up, but it’s most straightforward path to leadfrogging Disney in this category is to join forces with a competitor. A combination with either NBCUniversal or Paramount Global would put either new entity ahead of Disney in Corporate Demand Share.
