Warner Bros. Discovery Calls Time On The ‘Spend, Spend, Spend’ Streaming Model

Warner Bros. Discovery has ended Hollywood’s all-out gamble on streaming as it ditched a growth-at-all-costs strategy in favor of a more traditional approach to selling its movies and shows for ‘maximum value’ .

The change in strategy came as the group warned of a tough economic outlook and announced a net loss of $3.4 billion in its first full quarter as a combined company, highlighting the challenges of integration faced by the sprawling media group.

Warner’s management team outlined plans to establish a combined streaming service bringing together HBO Max and Discovery Plus, but pointedly described the platform as only “one part” of a larger approach.

Chief executive David Zaslav pointed to weaknesses in the subscription streaming business launched by Netflix by pointing to the commercial strength of traditional television, theatrical releases for movies and ad-supported free streaming models.

Mocking the “spend, spend, spend and charge very little” approach taken in recent years as media groups focused on streaming growth, Zaslav said Warner would take a “more sensible approach in the future. “budgets and prices.

“It was a reaction to capital markets – let’s go ahead and collapse companies and spend too much on content,” he said, referring to how media groups have sacrificed traditional licensing and theater revenue to supply streaming platforms with exclusive movies and shows. “We believe we can build a great streaming business that can reach everyone, but we’re not collapsing businesses there.”

Zaslav and his management team acknowledged that 2022 would be a difficult year for the company as it sought to integrate Warner and Discovery amid an economic downturn.

Warner’s revenue was $9.8 billion, with underlying performance down 1%. The group’s losses mainly result from restructuring and transaction costs related to the merger.

Warner also lowered operating profit estimates to $9 billion – $9.5 billion for 2022, blaming a tougher outlook for advertising, overspending on streaming content and a worse-than-one fiscal position. disclosed before the merger. The group’s shares fell nearly 12% after hours trading in New York.

Chief Financial Officer Gunnar Wiedenfels said Warner’s financial performance was not indicative of its underlying health or outlook, but reflected how management was starting from a “less favorable position” than expected.

Zaslav personified the return of fiscal discipline after a spendthrift era in Hollywood. Warner is aiming to cut costs by $3 billion over the next two years, a target executives have described as conservative.

The ax has already fallen on high-profile projects since Discovery completed its acquisition of Warner in April. Zaslav shut down the CNN Plus streaming service weeks after launch and shelved JJ Abrams’ big-budget HBO series Demimonde.

This week he dropped out of the movie bat girl during the final stages of its production, threatening to escalate tensions with some of Hollywood’s top talent. bat girlThe directors of Adil El Arbi and Bilall Fallah publicly expressed their disbelief at the decision, saying it was “critical” that their work be shown to an audience.

Zaslav brushed off the reviews. “Strategically, we’ve been looking closely at the direct-to-consumer streaming business,” he said, responding to a question about the last-minute cancellation. “This idea of ​​expensive movies going straight to streaming, we can’t find any economic justification for it.”

Warner revealed that it had gained 1.7 million streaming subscribers in the three months to June, a growth rate below analysts’ expectations.

Using a new method of calculating combined subscriptions, the company revealed that it has a total of 92.1 million global subscribers to its two main streaming platforms, HBO Max and Discovery Plus. It aims for the service to be profitable by 2024 and sets a target of 130 million paying subscribers by 2025.