Please wait...
Please wait...

Warner Bros Discovery doesn’t need to outspend rivals to compete, says Zaslav

David Zaslav expects the combined WarnerMedia-Discovery entity to be very competitive in the streaming wars but says it won’t need to outspend rivals Netflix and Disney in order to succeed.

David Zaslav

“Our goal is to compete with the leading streaming services, not to win the spending war,” said Discovery president and CEO Zaslav on Thursday during a wide-ranging investor call in which execs also discussed selling content to third parties, the immediate impact of Russia’s invasion of Ukraine on Discovery’s business in the region, and whether Wall Street’s concerns over the ceiling for the streaming business are warranted.

After clearing key regulatory hurdles in the US and Europe, the merger is expected to close in Q2, at which point the new company, Warner Bros Discovery, will unveil a global streaming offering that will combine the assets and massive IP catalogues of WarnerMedia and Discovery.

While the specifics of its streaming strategy remain under wraps, Zaslav was clear that the new entity will not be focused solely on SVoD business models.

“I think there are a number of players that are very tied to this idea of subscription only,” he said, noting that the streaming strategy at Warner Bros Discovery will have three “funnels.”

“Ultimately you could see a subscription-only service, an ad-light service and then a free digital service that everybody can go to,” he said.

Zaslav said the subscription-only and ad-light versions are likely to launch first. After launching those products, the company will look at how to reach audience segments that aren’t interested in paying at all for content.

“Eventually I think there will be a digital global broadcast network. It’ll have very different content than the subscription or ad-light [offerings] but there will be people that do not want to pay and they’ll want to watch content,” he said. “And who has more content than Warner Bros Discovery? Figuring out how to do that will be one of [the] strategic initiatives.”

Zaslav’s comments came as Discovery released its fourth-quarter financial results for 2021, in which its streaming service Discovery+ grew to 22 million global subscribers, up from 20 million in Q3.

In recent weeks, Wall Street has started to question the long-term economics around streaming. That started last month when Netflix narrowly missed its subscriber addition target and forecast slower growth in the next quarter, causing its stock price to drop from more than US$500 per share in January to under US$380 today. At its peak in mid-November the stock was trading as high as US$700 per share.

Meanwhile, the newly rebranded Paramount Global (formerly ViacomCBS) added seven million subs in Q4 and unveiled a vast slate of new streaming content during an investor presentation last week, only to see its stock price drop the following day.

With that likely in mind, Zaslav was keen to impress upon investors that Warner Bros Discovery will take a “measured” and “judicious” approach to its streaming investment.

“We’re going to be measured, we’re going to be smart, and we’re going be careful,” he said. “We’re going to invest in the streaming platform but that’s not our only game. Our game is to create a business that creates sustainable growth that’s global in nature.”

When asked whether the merger would mean that Warner Bros Discovery will stop selling its content outside the group, Zaslav said the company would find a balance between retaining projects to build its proprietary streaming platforms and acting as an arms dealer for third-party outlets.

“We have a big production entity here that makes a lot of money, and we have the ability to ramp that up to make more money in an environment where there’s lot of need. Or we have an ability to ramp that up and provide more for ourselves,” he said. “We’ll get in there and figure it out.”

Discovery execs were also asked whether Russia’s invasion of Ukraine made an immediate impact on its business in the countries. Chief financial officer Gunnar Wiedenfels said the fiscal impact was “immaterial” to the overall company. JB Perrette, president and CEO of Discovery streaming and international, added that Discovery had not seen any impact in other Eastern European markets, such as Poland, where Discovery operates.

Elsewhere, Zaslav was not asked directly about the situation regarding the resignation of former CNN Worldwide president Jeff Zucker, who departed the company earlier this month after it emerged that he had failed to disclose a romantic relationship with fellow CNN executive, Allison Gollust.

As incoming head of Warner Bros Discovery, Zaslav, who is a friend of Zucker, will inherit ultimate oversight of the news network.

Regarding CNN and its upcoming streaming service CNN+, Zaslav said it is still run by AT&T and therefore not his place to comment. “We will in the near term sit down and have a real business plan discussion with the people at CNN and CNN+. We haven’t had that yet,” he said.

The soon-to-close merger will see AT&T spin off WarnerMedia and combine it with Discovery. Through the deal, AT&T will receive around US$43bn in a combination of cash, debt securities and WarnerMedia’s retention of certain debt. AT&T shareholders will receive a 71% stake in the new company and Discovery shareholders will receive the remaining 29%. The deal has not yet received official approval from Discovery’s shareholders but that is thought to be a formality. The vote will take place on March 11.

RELATED ARTICLES

Please wait...