Last year was a challenging one for Warner Bros. Discovery (WBD -1.07%). The entertainment giant was formed in April 2021 by the merger of WarnerMedia and Discovery, and its share price has underperformed the S&P 500 ever since. But with Warner Bros. Discovery's leadership making plans to strengthen its position in the streaming industry, where might its stock be headed over the next five years?

Cutting expenses comes at a cost

Warner Bros. Discovery spent much of last year reducing costs as part of an effort to save at least $3 billion. Under the stewardship of CEO David Zaslav, it cut jobs, axed projects, and pulled TV shows such as Westworld and movies such as The Witches from streaming. 

Fortunately for stakeholders (and fans of Warner Bros. Discovery's content), the company recently signaled another shift. "[W]e're done with that chapter," Chief Financial Officer Gunnar Weidenfels said during a recent Citibank conference. "[2023] will be a year of relaunching and building."

Unifying streaming products

One of the major parts of Warner Bros. Discovery's business that will be getting the reboot treatment this year is its streaming arm. The company currently operates HBO Max and Discovery+ as individual services, but this spring, that will change as the two will be rolled into a unified service.

For Warner Bros. Discovery, combining its twin streaming products makes sense -- the company can simplify and streamline its back-end processes while also providing consumers with a single point of access to its content catalog. And when the new platform arrives, Warner Bros. Discovery says it intends to continue to offer both ad-free and ad-supported tiers.

A plan to outmaneuver the competition

For all its efforts to simplify its streaming offerings, Warner Bros. Discovery has a long way to go if it wants to compete with industry giants Netflix (NFLX 1.74%) and Walt Disney (DIS -1.01%) on raw subscriber numbers. Warner Bros. Discovery has almost 95 million streaming customers across HBO Max and Discovery+, while Netflix has just over 223 million, and Walt Disney counts 225 million total across Disney+, Hulu, and ESPN+. And with Netflix and Disney+ both introducing ad-backed tiers last year, the premium streaming space is sure to be competitive for a while yet.

But Warner Bros. Discovery also has another trick up its sleeve -- a free ad-supported TV (FAST) service.

Speaking during Warner Bros. Discovery's fiscal 2022 third-quarter earnings call, Zaslav confirmed the company would launch a new FAST offering at some point this year. As the executive noted, Warner Bros. Discovery has "the largest film and TV library" in Hollywood, and it believes it will be able to use that catalog to build a FAST platform without having to spend heavily on content acquisitions.

From an investor standpoint, the idea that Warner Bros. Discovery can create a whole new service from movies and TV shows it already owns is certainly compelling. And considering some industry experts are projecting the FAST industry could be worth as much as $4.1 billion in 2023 -- up from $2.1 billion in 2021 -- it seems Warner Bros. Discovery may well be on the right path.

A tough environment for ad-supported content

As promising as Warner Bros. Discovery's move into the FAST lane is, it still faces some challenges -- not least of which is the macroeconomic environment.

The ad industry has been sluggish since the middle of 2022, and with many economists projecting a U.S. recession in 2023, this year looks likely to be rough sledding for any company that draws revenue from hosting marketing messages. But over a five-year timeline, it's possible those difficulties will even out and Warner Bros. Discovery will become a key player in the FAST space.

It's unlikely a FAST service on its own will turn Warner Bros. Discovery's fortunes around. But as part of a broader array of offerings, where it could also serve as a feeder to a premium streaming service, the potential is compelling. And considering that Netflix and Walt Disney are not (yet) in the FAST arena, they won't be competing directly with it on that part of the playing field for ad dollars.

For market-watchers, it will be worth paying attention to Warner Bros. Discovery's next earnings call -- currently slated for the last week of February. The company will likely face fresh questions about its FAST plans, including what programming it could include. Should the likes of Westworld and The Witches make their way to that platform, I would expect Warner Bros. Discovery's future to look very interesting indeed.