Warner Bros. Discovery CFO: ‘Done with Chapter’ of Massive Cuts; Combined Streamer Will Improve HBO Max Tech

It has been a perilous nine months since Discovery officially acquired WarnerMedia in April 2022, with the newly formed Warner Bros. Discovery upsetting viewers, creators, and employees as the company’s new executives have looked to find money in every nook and cranny to pay down the more than $5 billion in merger costs and fees.

Most recently, the company has shipped original series off of its flagship streamer HBO Max in order to license them to third-party outlets while also allowing licensing agreements for 16 seasons of Looney Tunes shorts to expire, despite being owned by corporate sibling Warner Bros. Television. However, according to WBD CFO Gunnar Wiedenfels, the dark days of massive cuts and cancellations are over.

Speaking at the Citi 2023 Communications, Media & Entertainment Conference on Thursday, Wiedenfels said that getting the budget in order was the company’s top goal in 2022, but that it was looking to put the tumultuous aspects of those efforts in the past heading into 2023.

“We took a little bit of time to make sure that we do it properly,” he said. “For some of the titles, we found new homes elsewhere, etc. That’s why this is this took six, seven months. But I think we’ve come to two great solutions and most importantly, we’re done with that chapter. That was very important to all of us to really use 2022 to leave the purchase accounting behind us, leave those initial strategy changes behind us, get it all out there in terms of our restructuring estimates, and then be able to turn the page and move forward. I think the team has laid a great foundation and [I’m] really excited about the growth from here.”

One of the starkest changes that WBD implemented in 2022 is one that will not only change how its streaming platform is viewed but also potentially how companies handle the titles in their libraries moving forward. Like most streaming providers, Warner Bros. Discovery executives looked at their internal viewership numbers and made decisions about whether to renew or cancel individual shows, which is fairly standard in the industry. However, what made WBD’s approach so unique is that once a show was canceled, that didn’t mean that it would just remain as part of HBO Max’s archive in perpetuity, even if it was a property completely owned by WBD.

Instead, titles were written off for tax purposes, shopped to other streaming services, or simply jettisoned to avoid paying royalties to the show’s creators, cast, and crew. While some of these moves completely upset the value proposition that many customers come to streaming for, Wiedenfels believes that other media companies will follow suit in the coming year.

“We shaved off a lot of the excess last year,” Wiedenfels said. “I think that’s something that everyone else in the industry is going to go through. We’re coming from an irrational time of overspending with very limited focus on return on investment, and I think others are going to have to make some adjustments that we frankly have behind us now.”

Another long-anticipated part of the industry’s evolution that WBD is looking to get a jump on is the merger and consolidation phase of the streaming wars. It has already been announced that the company will combine HBO Max and discovery+ in the spring, but that approaching date is not nearly as quickly as WBD execs would have liked. However, they viewed the current HBO Max technology as being so bad, that they had to start from scratch.

“The most important point is the decision that we’ve already made a while back, which is to rebuild the whole thing,” Wiedenfels said. “That was a little frustrating because we all wanted to get out and get the products combined, but the reality is you only get one chance for a first impression with a consumer, and we’re not going to launch something that’s not adequate.”

The CFO noted that the content on HBO Max is some of the most well-received in the world, but that its delivery platform was nowhere near living up to that level. While the newly merged platform — reportedly to be called Max — will have a completely new infrastructure, the company’s tech teams are also working on improving the current product in the meantime.

“We’ve got this bifurcation of the greatest content in the world,” he said, “but then, just a subpar consumer experience. The team has made some improvements and the exciting thing is that even without relaunching the full technology stack we’re seeing improvements in our metrics, engagement is coming up.”

One of the major concerns that a certain segment of subscribers have about Warner Bros. Discovery’s unified service is the yet-too-be-announced price. Currently, discovery+ customers pay either $4.99 or $6.99 per month for the ad-lite and ad-free services; conversely, HBO Max customers pay $9.99 or $14.99. Finding a price point and rollout structure that keeps discovery+ customers subscribed to the service will be vital, especially considering that WBD has been clear that there is very little overlap between the two services’ customer bases.

“The fundamental thesis of this combination is the synergy between the event-driven HBO Max, HBO content on
the one hand, and then the daily engagement — hours and hours of daily engagement — from discovery+ … We’re going to make it as seamless as possible. There’s a whole team that’s focused on how to manage the transition for the existing different types of HBO Max subscribers, different types of discovery+ subscribers. And I’m confident that we’ll manage that
appropriately.”

No matter what the team comes up with, it will almost certainly not come at a discount. As a rule, Wiedenfels believes that all direct-to-consumer streamers are underpriced, and he believes that will change moving forward. He noted that the idea of taking loads of content that had previously been available in multiple places — and generating multiple revenue streams — and putting them on a single service for a low price is unsustainable.

“There’s no doubt that these products are priced way too low,” he said. “I think JB [Perrette, WBD’s CEO and president for global streaming] or David [Zaslav, CEO] on one of our earnings calls went into detail here. The idea of collapsing seven windows into one and selling it at the lowest possible price doesn’t sound like a very smart strategy.”

Part of the problem with the industry, according to Wiedenfels, is that all of the studios threw billions of dollars at content in order to attract subscribers, but never focused on how to get a return on that investment. He thinks that the inevitable cuts at streamers and needed budget pullbacks will be a “reflection of an industry that went overboard and went on a spending frenzy.”

Much to the chagrin of many inside and outside of the industry, WBD is charting its own path through the increasingly complicated streaming landscape. Whether or not the company proves to be a trailblazer or a cautionary tale is yet to be seen, but there is no doubt that Warner Bros. Discovery has a vision uniquely its own and has no qualms about sticking to it.