Warner Bros. Discovery (WBD 1.08%) has made headlines on a near-weekly basis as its CEO David Zaslav restructures the company to prioritize profits and pay down a looming debt. Building on this, recent reports state that Zaslav has decided to focus on releasing films theatrically rather than debuting new titles on the company's streaming service, HBO Max.

The move has the potential to maximize revenue while continuing to make inroads in the streaming industry. Let's assess. 

A return to form

The COVID-19 lockdowns and theater closures prevalent throughout 2020 and 2021 led WarnerMedia to adopt various release strategies to boost its newest films, to the detriment of box-office revenue. Blockbusters such as Wonder Woman 1984, Dune, and The Suicide Squad received a hybrid release in which the films premiered in theaters and HBO Max on the same day and were only available on the streaming service for one month. 

As a result, the company's biggest films severely underperformed as moviegoers chose to watch the new titles at home. For instance, Wonder Woman 1984 premiered in December 2020 in theaters and on HBO Max, taking home $169.6 million at the box office on a budget of $200 million. Alternatively, in 2017, the first film made $822.8 million on a budget of $150 million -- almost four times more than the 2020 sequel.

Similarly, The Suicide Squad, a soft reboot of the 2016 DC film, did not fare well when it debuted simultaneously on streaming and in theaters in July 2021. The original movie was released five years before, and despite its 26% score on Rotten Tomatoes, it grossed $746.8 million on a budget of $175 million. Meanwhile, the 2021 film brought on Marvel legend James Gunn to direct, introduced a cast of fan-favorite actors, and earned a Rotten Tomatoes score of 90%, but only achieved $168.7 million on a budget of $185 million. 

While the pandemic greatly impacted the performance of these films, that doesn't mean consumers wouldn't continue to watch movies that come free with a subscription over paying extra for the theater experience. On Aug. 8, Zaslav shared the same sentiments as he announced the company's future content strategy would "fully embrace theatrical" releases.

The move gives the company's films the best chance to maximize profits, something Warner Bros. Discovery needs as it pays down $55 billion of debt. 

Keeping what works

Focusing film production on theatrical releases isn't a significant loss to Warner Bros. Discovery's streaming business. Time and time again, viewing numbers have proved quality TV shows are the main driver for streaming subscription growth. For instance, in the first quarter of 2022, Netflix (NFLX -9.09%) lost 200,000 subscribers and projected a further loss on 2 million in the second quarter of 2022. However, the company's release of Stranger Things Season 4 in May boosted subscriber retention and led the company to report a more modest loss of 970,000 members in Q2 2022. 

Comparatively, Warner Bros. Discovery has a significant asset in HBO, known as the king of prestige TV for hits such as The Sopranos and Game of Thrones. HBO Max can offer an incredibly attractive library of titles with a back catalog of HBO legacy series and new shows such as Euphoria. Its second season pushed the Zendaya-led show to become the second-most-watched HBO show in history, only behind Game of Thrones

As for films on HBO Max, the top-performing movies in 2022 so far all had a theatrical run rather than being made exclusively for the streaming platform. The top five most-watched HBO movies in 2022 have been as follows: Dune, The Batman, King Richard, Fantastic Beasts: The Secrets of Dumbledore, and The Matrix Resurrections. Developing films primarily for theatrical release and then adding them to HBO Max down the road will only bolster the company's streaming library.

Additionally, the most significant move in Warner Bros. Discovery's future will be to combine HBO Max and Discovery+ into one platform. The merger will add an extensive library of popular unscripted series such as Property Brothers and 90 Day Fiancé, further boosting the company's streaming potential by offering a wide range of popular titles on one well-rounded site.

A long way to go

Warner Bros. Discovery is undergoing a dramatic shift in business strategy as it keeps what works and drops what doesn't. Investors will still want to be wary of its stock until the dust settles on its planned changes, but a move toward prioritizing theatrical releases is a step in the right direction. So while you might not want to put all of your eggs into the Warner Bros. Discovery basket, it is a stock to watch carefully as it carves its place in the increasingly competitive streaming industry.