Warner Bros. Discovery (WBD -2.63%) has had a tough time competing in the streaming space against industry giants like Netflix (NFLX 1.71%) and Walt Disney (DIS 0.82%). Where Netflix and Walt Disney have subscription video-on-demand (SVOD) subscriber numbers in the hundreds of millions, at last count, Warner Bros. Discovery had just under 95 million across its HBO Max and Discovery+ platforms. But with the company's decision to tap into the free ad-supported television (FAST) market, Warner Bros. Discovery might be unlocking some unique business opportunities.
Charting a new course
Warner Bros. Discovery made a lot of headlines over the last year for cutting its head count, pulling existing content like Westworld and The Nevers from HBO Max, and shutting down movie and TV projects such as Batgirl and Snowpiercer. And while the strategy was widely criticized by many both inside and outside of Hollywood, Warner Bros. Discovery CEO David Zaslav has been clear that the company is executing a "strategic shift" that also involves finding $3.5 billion in savings.
Now though, it looks as though the company is putting down the ax, with CFO Gunnar Wiedenfels recently commenting that Warner Bros. Discovery is "done with that chapter." Speaking at a Citibank event, Wiedenfels suggested "[2023] will be a year of relaunching and building."
Blending streaming services
A key part of Warner Bros. Discovery's mission this year is the convergence of HBO Max and Discovery+, which will happen this spring.
To prepare for the merger, Warner Bros. Discovery tested lifestyle content from Discovery+ and some of its cable subsidiaries on HBO Max to see how well it would sit alongside prestige content such as The Sopranos. In its fiscal 2022 third-quarter earnings call, Warner Bros. Discovery noted Magnolia Network series Fixer Upper: The Castle ranked as a top five show within days of landing on the streaming service, suggesting the content blend could work well.
FAST is the next part of the plan
Speaking during the third-quarter call, Zaslav said once the HBO Max-Discovery+ merge is complete, Warner Bros. Discovery will turn its focus to building out a FAST product, suggesting it could launch by the end of 2023. As Zaslav explained it, the company has a "huge amount of content" that is currently not available via streaming, and leveraging such programming will allow Warner Bros. Discovery to establish a FAST platform "without buying content."
Zaslav's enthusiasm might encourage investors watching Warner Bros. Discovery's stock. After all, a Warner Bros. Discovery-owned FAST service would surely be the perfect home for shows such as Westworld and Snowpiercer -- especially as the company will want to attract viewers and advertisers to its new service. But Warner Bros. Discovery has taken a different approach -- it's offering a bundle of annexed shows to rival FAST providers.
Protecting SVOD in service of FAST
While the strategy at first sounds counterintuitive, licensing such premium content to third-party platforms may be the smartest move for Warner Bros. Discovery stakeholders -- at least in the near term.
Warner Bros. Discovery has made it clear its primary focus right now is getting its new SVOD service on its feet. As previously noted by Warner Bros. Discovery's CEO and president of global streaming and games, JB Perrette, HBO Max has had performance problems, yet it has features that Discovery+ is missing. If Warner Bros. Discovery's new SVOD offering is about bringing together the best parts of each platform, it will certainly want to make sure that it's in robust shape when it arrives.
But just because Warner Bros. Discovery's eyes are on SVOD, that doesn't mean it can't make money from FAST. By offering a package of premium shows to others it's able to monetize that content without having to deploy streaming resources. Of course, it could be argued that the company is giving competitors an advantage before it's even launched its own FAST platform, but the Warner Bros. brand is almost 100 years old, making it likely the company has plenty of high-quality content to utilize.
For stakeholders it will be worth watching which FAST operator purchases Warner Bros. Discovery's bundle, and what it pays for it. That insight should help investors understand the value of Warner Bros. Discovery's content in the marketplace, and possibly just how much the company is saving when it launches its own FAST platform.
