The rumors are true: Discovery+ will remain a standalone service ahead of the upcoming consolidation of the smaller streamer and HBO Max.
“For those that have Discovery right now, the churn is very low, and it’s profitable,” Warner Bros. Discovery CEO David Zaslav said during the company’s fourth-quarter earnings call Thursday evening.
While Zaslav acknowledged that many customers would want to move up to the larger product, which would have content from both streamers, some subscribers are satisfied paying $5 to $7 and sticking with Discovery and OWN-type content.
“Our strategy is no sub left behind. We have profitable subscribers that are very happy with the product offering of Discovery+. Why would we shut that off?” Zaslav added.
Though Discovery+ may be profitable, Warner Bros. Discovery’s streaming division certainly is not, this time losing $217 million in the fourth quarter. The direct-to-consumer segment pulled in $2.45 billion in revenue; only around 5% came from advertising.
Overall, the company lost $2.1 billion, which Zaslav attributed to a “very challenging” macroeconomic environment, which he believes will improve in the second half of the year.
The DTC segment added 1.1 million subscribers, bringing its total to 96.1 million to end the year, up from the 94.9 million reported in the previous quarter.
There’s still no information on a launch date for the upcoming combined service; however, the company revealed there would be a press event on April 12, which Zaslav teased would reveal a “significantly enhanced” product platform.
One ring to rule them all
Despite the ongoing revenue losses, Zaslav remains confident that WBD is on the right track.
During the call, he revealed that “multiple” new Lord of the Rings movies have been ordered by the company’s film studio.
Newly installed studio leaders Mike De Luca and Pam Abdy—who recently exited from MGM—have signed on with the company to create the films. A “new era” at DC Studios is also ushering in the development of five films and five television series.
As part of WBD’s content strategy, Zaslav pointed to the success of HBO originals, including House of the Dragon, The White Lotus, Euphoria and recent hit The Last of Us, as subscription drivers.
The Last of Us premiered during the first quarter of this year, and Zaslav was quick to emphasize its exponential growth, using the opportunity to double down on the weekly release model.
“We believe that when you have content that is so good that it hits the zeitgeist, the best way to drive interest and engagement is not by dropping the entire season on a platform all at once but by allowing the buzz and anticipation to build over time,” Zaslav said. “And it’s the same principle with theatrical: Perceived value of content increases when there’s great expectancy and excitement.”
A struggling strategy
By Zaslav’s admission, closing the Warner Bros. Discovery merger immediately before last year’s upfront may not have been the best strategy.
“We had to take two different sales teams and pull them together,” he said, adding that the group made the decision to drive price rather than extra volume.
“In order to do that, we took less volume than we could have. And now you see a very soft scatter market, so that is having some impact on us versus others that took a much bigger position,” Zaslav said.
Looking ahead to the 2023 upfront, the company is seeking a more equal balance.
“I think the breadth of our content, together with where we go in on price, positions just very well,” Zaslav said. “And so we’ll keep in mind this balance of volume versus price, but I always would err toward price because I think that’s where you really build asset value.”
