June 1, 2023

Brighton Journal

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Warner Bros. Discovery is renaming it “HBO Max,” and it’s hedging its bets on streaming

  • Warner Bros. brought back. Discovery named its flagship streaming service Max, removing HBO from the name.
  • Executives explained Wednesday that the decision was to protect the HBO brand and highlight the service’s reach beyond prestige adult programming.
  • Service Connection Max Creates Warner Bros. Discovery to challenge Netflix and Disney for global streaming dominance, but that wasn’t the company’s messaging last year.

JB Perrette, President and CEO, Warner Bros. Discovery Global Streaming and Games, speaking on stage during a Warner Bros. event. Discovery streaming journalist on April 12, 2023 in Burbank, California.

Jeff Kravitz | Getty Images

Although modest, David Zaslav, CEO of Warner Bros. Discovery, this week it sure is a name dropper.

Warner Bros. revealed. Discovery announced its new streaming service on Wednesday, which includes a host of shows from HBO Max and Discovery+. It will be released on May 23 in the US, later this year in Latin America, and in the rest of the world in 2024. It will be called Max — sans HBO.

On a superficial level, Warner Bros. Discovery dropping the HBO Max name was a logical marketing choice. In depth, it begins to feel like a microcosm of the existential tension that lies at the heart of the company – and the media industry more broadly.

The company is trying to compete with Netflix and Disney for winning in streaming, while simultaneously pushing a message of financial discipline that de-prioritizes streaming subscriber additions. It’s a matter of quality versus quantity, and Warner Bros. is trying to make that happen. Discovery play on both sides.

“Max is where consumers can finally say, ‘This is a service that not only has something for everyone in my house, but does something great for everyone in my house,'” said JB Perrett, the company’s president of broadcasting. During a presentation introducing Max On Wednesday in Burbank, California.

Perrett on Wednesday explained why Warner Bros. Discovery removed the HBO part of the name from the new service. He said HBO is synonymous with adult entertainment, and Max will tend to offer programming for children and families.

“We all love HBO,” Perrett said. “It’s a brand built over five decades to be a trendsetter in adult entertainment. But it’s not exactly a place where parents can easily drop their kids off. Not surprisingly, the category hasn’t met true potential on HBO Max.”

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In this photo illustration, the Warner Bros. logo is shown. Discovery On the smartphone screen and in the background, the HBO Max and Discovery Plus logos.

Rafael Henrique | Light Rocket | Getty Images

Warner Bros. executives felt that Discovery said the HBO name actually limited the streaming service’s audience because it scares away potential audiences. They also felt that the HBO brand could be diluted by the influx of reality TV shows on Discovery that are set to join the platform, such as “Dr. for conversation over the water cooler in the office.”

“HBO is not television. HBO is HBO. It has to stay that way,” Perrett said at the event. “We would not drive it to its breaking point by forcing it to assume the full scope of this new content proposition had we kept the name in the service brand. By doing so, we will upgrade and better showcase our unrivaled suite of other content and branding services that will be key to expanding The scope of attractiveness of this improved product.

The company’s logic is rational. HBO appeals to a certain audience, but it also doesn’t appeal to a certain audience. HBO fans aren’t going to unsubscribe from the service in response to Max’s name, but some folks who used to be intimidated by HBO may now just subscribe to the adult brand due to the flood of obvious HBO content coming to the service.

When HBO Max initially launched, executives at AT&T and WarnerMedia assured subscribers that this new app was, first and foremost, the home of HBO. Now, about 80 million subscribers later, this point is less important. Those who want HBO already know where to find it, and HBO Max will simply switch to Max on most platforms.

Broadcasting is entering its “teenage” years, Perrett said, and Max as a name makes more sense to continue adding subscribers globally in a world of declining growth.

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That would be the end of the story if Warner Bros.’s stated goal. Discovery is increasing (no pun intended) the number of subscribers that subscribed to Max.

That was every media company’s goal when Zaslav agreed to merge Discovery with WarnerMedia in 2021. But according to Zaslav, that’s no longer a priority.

“I’d rather have 100 million subscribers or 150 million subscribers and be really profitable than try to scale to get too many and end up losing money,” Zaslav told CNBC’s Julia Burstein after the presentation on Wednesday. “We take a look at what people are watching on Max and we can see exactly what they like and don’t like. And some of the things they don’t watch, we can put on AVOD for free.” [advertising-supported video on demand] And some of the things they don’t watch, we can keep non-exclusively on Max, but we can also sell to others.”

“We’re relentlessly focused on creating great content and monetizing in every way we can,” he said.

With a new broadcast strategy — and Max at the center — Warner Bros. Discovery hedges its bets.

The company maintains Discovery+ for customers who are happy to pay $5 or $7 just for Discovery programming. Perrett said the company “doesn’t want to leave any lucrative subscribers behind.”

Zaslav also hinted at Warner Bros. service. Free ad-supported Discovery, which The company said Coming later this year.

Warner Bros. could have. Discovery can keep HBO Max, too. For customers who wanted both Discovery+ and HBO Max, it could have offered a bundle at a discount. This was Disney’s strategy to deliver Bulk ways to mix and match Hulu, ESPN+, and Disney+.

Instead, the company has loaded up one service with everything it has, which may also eventually include some news from CNN and sports like NBA or NHL games. Zaslav said Wednesday that he would get more details on that “in the coming months”. Don’t forget, Zaslav killed CNN+ as a standalone broadcast option last year after about a month in existence.

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Warner Bros. Discovery is building the Max as a one-size-fits-all option that has the scale to get around the ever-increasingly fast post-cable world.

But Zaslav also tells investors it’s okay to limit Max’s growth. It is more important for him to make money than to compete with Disney and Netflix to become the largest streaming operator in the world.

It’s a delicate balance: Disney, Paramount Global, Comcast’s NBCUniversal, and even Netflix are all fighting the same forces. Investors have shifted the spur-of-the-moment growth-at-all-costs narrative in the past year, halving the valuations of many media and entertainment companies.

What is happening now is, in essence, a hedge. The media industry knows that broadcasting is the future, but growth has slowed. Zaslav defended the value of the traditional pay-TV package while criticizing the former WarnerMedia system’s profligate spending on broadcasting. He’s trying to give investors a new reason to get excited about the Warner Bros. discovery. That message, Zaslav hopes, is to generate free cash flow.

David Zaslav, President and CEO of Warner Bros. Discovery, to the media as he arrives at the Sun Valley Resort for the Allen & Company Sun Valley Conference on July 5, 2022 in Sun Valley, Idaho.

Kevin Deitch | Getty Images

“In the end, I’m the free cash flow guy,” Zaslav said Wednesday. “We want great talent, but in the end, if we don’t make sign-up money, if we don’t have any ARPU… [average revenue per user]We don’t help ourselves and we don’t help shareholders.”

There are some signs that he might be on to something. Warner Bros. shares rose. Discovery is up nearly 50% this year after falling about 60% last year.

But when you take a two-part name — HBO and Max — and keep just Max, the implication is “big” over “quality.”

That was the AT&T message. It wasn’t Zaslav’s message yet.

WATCH: The full CNBC interview with Warner Bros. CEO David Zaslav. Discovery

Disclosure: CNBC’s parent Comcast owns NBCUniversal and co-owns Hulu.