Warner Bros. Discovery Inc. plans to launch a streaming service that combines content from HBO Max and discovery+.
Jean-Briac Perrette, president and CEO of Discovery Streaming and International, said the single service will bow in the U.S. in the summer of 2023, followed by Latin America later that year. It will launch in European and Asia-Pacific markets in 2024.
Building on a combined base of 92.1 million subscribers to HBO (US), HBO Max and discovery+ at the close of the second quarter, Warner Bros. Discovery anticipates adding 40 million more subs by 2025. Perrette said there is currently an overlap of some 4 million subscribers between the two services.
The name and pricing for the combined service were not revealed during the company's Aug. 4 earnings call.
In keeping with how the services trade today, there will be ad-free and ad-supported versions of the product that will combine content from both. Perrette said the company is also "exploring" a way to reach customers via a free ad-supported TV, or FAST, product. Customer guidance excludes any FAST-product considerations, according to CFO Gunnar Wiedenfels.
In March, ahead of the April 8 closing of the merger between Warner Bros. and Discovery, Wiedenfels signaled that the company would ultimately combine the streaming services and would initially sell them as a bundle.
HBO Max retails for $14.99 per month without commercials and $9.99 per month with ads. In the U.S., discovery+ costs subscribers $6.99 per month without ads and $4.99 with commercials.
Perrette said the company recognized there were shortcomings with both products. While HBO Max has a competitive feature set, it had performance and customer issues. Discovery+ offers best-in-class consumer ratings but has more limited features.
The executive said the combined service will focus on delivering the best of both, with one tech stack that leverages much of discovery+'s core infrastructure and important feature enhancements from the more established HBO Max.
Perrette said the product design and feature set will enable better content discovery and more personalized choices. The company believes this will lead to increased engagement and in turn reduced churn. Moreover, it should result in greater monetization, especially with the "ad-lite" product.
"There's much work to be done over the coming months from retooling the tech platform to enabling proper content and metadata ingest around the world and ensuring a seamless customer migration for launch," the CEO said. "There's lots to do, and we're determined to get it right, which will take a bit of time."
Perrette noted that many of the biggest European markets, including the U.K., Germany and Italy, do not fall within the current rollout plan. "But we want to remain disciplined and prove out the strength of our product and profitability first," said Perrette.
EBITDA will serve as the company's "North Star," and it will be driven by top-line growth and greater cost efficiency by combining the products, which will curtail both tech and marketing expenses, Perrette said.
"We'll see benefits by moving to a single branded product leveraging the power of our owned networks as well as more optimized spend," said Perrette.
Peak direct-to-consumer EBITDA losses are expected to occur in 2022, as the company manages various aspects around technology, personnel and integration ahead of the planned relaunch starting next summer.
To that end, the company forecasts that its U.S. streaming business will be profitable in 2024 and that its global streaming segment will generate $1 billion in EBITDA by 2025.
Overall, the company reported pro forma combined revenue of $10.82 billion in the second quarter, down from $11.21 billion in the year-ago quarter.
The pro forma net loss attributable to the combined company was $2.15 billion in the second quarter, versus $341 million in the year-ago quarter.