News

Sometimes you have to destroy to build

Warner Bros. Discovery is committed to streaming and making the necessary decisions to succeed.

Andy Marken
Source: “The Old Man,” 20th Century Fox

 

“That game has no rules. Its puzzles have no solutions. They just lead to other puzzles. That’s what makes this game so interesting.”—Dan, The Old Man, 20th Century, 2022.

 

So far, Warner Bros. Discovery’s (WBD’s) boss, David Zaslav, has relied heavily on the entertainment company’s past to move his deeply leveraged organization into tomorrow, and that could be a good thing or… who knows. At this year’s Allen & Company Sun Valley Conference, Zaslav was coy about the changes the company had in mind for the new theatrical, pay-TV, and streaming service organization. But this is what we do know. He cancelled a number of DC projects, including Batgirl—borrowing from Orson Wells’ famous Paul Masson winery’s line (https://tinyurl.com/ywpatb4h) and telling financial and industry analysts, “We are not going to release any film before it’s ready…”

It may work better for movies/shows than it did for wine because even after years of making wine for the masses for nearly 100 years, the winery finally turned off the spigot to become a conferencing/events center.

However, Zaslav isn’t counting on a well-turned phrase to help him make the cobbled-together entertainment entities—movie/TV studios, cable/linear TV networks, and promising D2C (direct-to-customer) AVOD/SVOD streaming service—into a smooth-running/profitable viewer-centric organization that can quickly pay down its $43 billion merger load and more than justify his hefty $246 million salary.

Killing off Batgirl and a few other projects gave the company a nice little tax write-off of $825 million and reinforced the concept that they were going to build a DC Cinematic Universe that could equal Disney’s Marvel Cinematic Universe—but without all the expense.
To prove it, he brought on an industry heavyweight, former Disney film chief Alan Horn, to help develop a 10-year plan. His plan? Closely follow Disney and build the biggest entertainment organizations in history focused on quality. Lead, follow, or get outta the way!

Of course, financial analysts, investors, and the viewing public don’t care much about 10 years from now or even next year. They care about next quarter’s numbers and shows/movies available now. That’s tough, and getting tougher.

Back before Zaslav took control of the new company, Warner’s CEO, Jason Kilar, focused the company’s future on HBO Max, moving theatrical content to day/date theatrical/streaming release and irritating just about everyone in Hollywood, while not particularly impressing potential streaming subscribers. Kilar’s “all in” approach vs. true consumer/project value did enable filmmakers and theater owners to understand that regardless of the genre. There are theater movies and small-screen movies… they’re both professional but different.

People of all ages have rushed back to theaters this year to catch the tentpole movies with bunches of strangers. The biggest ticket sellers have been adventure, action, thriller, and horror movies.  

New installments of audience favorites—Jamie Lee Curtis’s Halloween Kills, Daniel Craig’s No Time To Die, Venom: Let There be Carnage, Spider-Man: No Way Home, Jurassic World Dominion, and Top Gun: Maverick—proved that broad, high in-demand franchises could get folks out of their homes and into a theater with a bunch of other people. Action, adventure, superhero, and thriller/horror films are box-office winners for studios and theatres, and that’s not about to change.

What has changed, thanks to Netflix, Amazon Prime, and Apple TV+, has been the increased quality/value people around the globe expect in the films they invest in—subscription and time. Netflix’s momentary subscription loss shows that US subscriptions have stalled and that growth lies elsewhere around the globe and with a range of growth of viewing options—subscription and FAST.  

With the rapid proliferation of new D2C services and intense competition—especially in the Americas—sustained subscriber growth should have been anticipated by everyone without a sustained/increased spend in content. In addition to reluctantly adding FAST options, Netflix has shifted its focus on localized content—Europe, APAC, LATAM, Africa—where anywhere, anytime viewing interest is growing.

Product reseller/delivery service Amazon and hardware/software/service Apple continue to grow in the home/personal entertainment arena based on a different set of rules. Amazon Prime Video continues to have about 200 million subscribers for its range of delivery service, video/game/publication services, as well as its FreeTV library offerings.

While Netflix disappointed Wall Street and shareholders by experiencing its first negative subscription growth in its history, the streaming service continues to be well ahead of competitive services even though they do have strong global competitors. While still well behind Netflix with true streaming subscribers only, Amazon continues to hold a strong position in the premium home-delivery entertainment market with a 4% US subscription growth over the past 12 months, according to Antenna Research.

Apple continued to focus on quality vs. quantity for its Apple TV+ service, resulting in more than 52 Emmy Award nominations over 13 titles such as Ted Lasso and Severance. The focus has helped the company increase its streaming/news/fitness/music/gaming subscriptions by more than 130 million in the past year to 860 million plus globally.  

Source: ParrotAnalytics

 

Strong demand—With a steady stream of new, unique content, the major project development firms enjoy the highest demand for their creative work.  

 

Despite the uncertain economy and crowded streaming arena, Disney, Paramount, and even Peacock (NBCUniversal) are all well positioned to be major personal/home entertainment providers with significant libraries, subscription, and FAST viewing options—and a growing national/international audience.   

Bob Chapek couldn’t have taken the helm of entertainment icon Walt Disney Co. at a worse time (2020). Despite some missteps—the Scarlett Johansson/Black Widow Disney+ release, Don’t Say Gay, a potential forced Florida move, and the abrupt/public firing of TV division boss Peter Rice—he managed to keep the Mouse House on the rails.

Disney+, Hulu (80% owned by Disney), and India’s Disney+ Hotstar have more than 184.2 million global subscribers. With new SVOD/AVOD pricing and rich content libraries, there are plenty of opportunities to achieve its goal of over 260 million subscribers by 2024. The company’s rich content stream from Marvel Studios, Pixar, Lucasfilm, Muppets Studio, and National Geographic is supported by a powerful and profitable marketing/merchandising activity that produces more than $56 billion in annual worldwide sales.

Paramount Global’s Paramount+ and Comcast’s NBCUniversal Peacock only add to the feeling that the new TV is a lot like the old TV. With more than 43 million Paramount+ subscribers, 64 million monthly Pluto TV (free) subscribers, and over 27 million premium Showtime subscribers, it has plenty of potential for global growth if it can streamline its service offerings into a single, multi-level offering.

Peacock already offers premium, AVOD, and FAST service with more than 13 million subscribers plus an added 15 million-plus monthly average users and extensive NBC/Universal libraries. Its parent company, Comcast, is the world’s largest broadband/cable company, which also owns Europe’s Sky pay-TV service with more than 12.7 million customers.

It should also be noted that Comcast, Peacock’s parent, has extensive experience in helping marketers target and monetize their advertising.  

While traditional pay-TV is admittedly declining in the Americas, home entertainment companies will be focusing most of their attention on creating more streaming-first content and strengthening their discovery/recommendation/delivery back-office systems and tools so they can capture and retain more people for longer periods of time.

The big six (Netflix, Disney+, Amazon Prime, Paramount+, Peacock, and WBD) as well as an estimated 200 global and regional video services will be turning their attention to going beyond the early adopters and reaching more of the nearly 1.1 billion-plus potential global viewers. In other words, the future of TV is starting to look a lot like old-fashioned television… confusing.

The majors will have to have a strong mix of movies, scripted/unscripted shows, news, and sports or bundled national/regional relationships. 

As bad and confusing as the core streaming is, the business of subscriptions and ad growth remains strong across the industry. But the common ground for the entire content industry is the development and nurturing of franchises across key genres—action/adventure, animation, children, drama, and so forth.

Source: ParrotAnalytics

 

Franchise leader—Despite a misstep now and then, Disney spends a lot of time and attention on shaping one of the creative industry’s most powerful franchise operations for fans around the globe.  

 

Disney has done an excellent job with its Marvel Studios, Star Wars, and Pixar action/adventure and fantasy franchises across theatrical films, Disney+, comics, and games. CBS/Paramount+ and NBC/Peacock have done this successfully for years with long-running TV series including CBS’s shows/spin-offs—NCIS, CSI, Blue Bloods, FBI, and unscripted reality shows; NBC’s shows/spin-offs—Yellowstone, Law & Order, and all the Chicago series.

The younger streaming first contenders have yet to hit the formula, with 91% of Netflix projects being non-franchise series and more than 90% of Amazon’s titles being non-franchise. But this will change as their national/international libraries grow.

Walk the line

While these are being established with audiences around the globe, Zaslav must play the hand he’s been in dealing with the company’s studio business (film/TV studios), linear TV networks (Discovery, HBO), and the firm’s evolving/fluctuating streaming services HBO Max and Discovery +.

Despite its ongoing impairments and development/production write-offs, WBD wants Marvel to become a major franchise studio with billion-dollar hits without having to invest in a roster of A-, B-, and C-level characters that audiences simply must see.

In the already overloaded—and active—streaming market, Netflix already has a 19.5% demand share, Disney+ and Hulu have a 19% and 19.2%, respectively, Paramount+ and Amazon Prime Video each have 8.2%, while the slow starting Apple TV+ has experienced a 10% demand share and Peacock a 2% (US only) demand share.

While WBD has set 2023/24 as its formal launch date for the new HBO Max/Discovery+ services, consumers have already shown signs that they are willing to pay for three to four streaming services in this content rich market. This becomes an area of concern in the fast-growing APAC streaming region where WBD services won’t be available for two years. 

The situation is particularly egregious in the wider Asia region, which is currently the world’s fastest-growing streaming market, but where the new, improved WBD iteration of HBO Max will not be available for another two years. In Europe, the company runs the risk of alienating content suppliers where Netflix and Amazon are moving aggressively with local production and rapidly expanding services.  

While the company has an aggressive goal of 130 million subscribers/viewers by 2025, Zaslav must optimize WBD’s under-managed assets, integrate complex organizations into a single unit, and aggressively reduce overhead and head count, all without cannibalizing its cash-flow-positive businesses.

To produce this commercially, technologically, and financially viable entity, WBD’s Zaslav has already indicated that WBD will focus on balancing its debt obligations, tightening its content spend belt, and making significant executive/staff adjustments to minimize redundancies. In plain English, that means significant layoffs for its executives and staff to minimize redundancies within WBD, HBO/HBO Max, and Discovery+, with a harder line separation between the scripted and unscripted content operations.

Source: “The Old Man,” 20th Century Fox

 

While this is being planned/developed by Zaslav’s new management team, resumes are being updated, agents put on speed dial by the most qualified members of the organizations, and headhunters are on the prowl.

Because as Dan observed in The Old Man, “Sometimes there are things that you don’t get to know before the curtain comes down.” And added, “Rich folks don’t explain s***”