CFO: Discovery Eyeing Ad-Lite Options for HBO Max, Discovery+

The pending $43 billion merger between Discovery and WarnerMedia is set to create a new company called Warner Bros. Discovery. How that combination will affect each company’s branded SVOD platform remains “the $64,000 question,” one Discovery CFO Gunnar Wiedenfels shed little new light on.

Speaking Sept. 13 at the virtual Banc of America Securities 2021 Media, Communications & Entertainment Conference, Wiedenfels reiterated that the combined companies would realize $3 billion in synergies, including merging backend technologies driving the respective direct-to-consumer platforms, in addition to increasing average-revenue-per-subscriber, or ARPU.

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“I have no doubt we are creating one of the content powerhouses in the world,” Wiedenfels said. “As a consumer, I can’t wait to access to that kind of a content portfolio.”

Gunnar Wiedenfels

HBO Max and HBO ended the most-recent fiscal period with 47 million combined domestic subs, and 67.5 million subs globally. Discovery+ topped 17 million paid subs through the second quarter (ended June 30), and 18 million through Aug. 3.

Whether that translates into a combined streaming service or co-bundled combo, and at what price points, Wiedenfels wouldn’t address. He said both companies spent much of the summer ironing out details, including complementary content portfolios, and have “pretty much” a plan in place with a few “tweaks here and there” that he said would remain under wraps until the merger passes regulatory approval.

“I think [Discovery CEO] David [Zaslav] and the team have a pretty clear view,” he said. “Their whole strategy will be guided by what the consumer wants. I think we have our ducks aligned here. I’m really looking forward to coming out with more [details] as we go along.”

When asked about ad-supported options for Max and Discovery+, Wiedenfels said senior management would look “very hard” at the concept, adding that he believes Discovery and Max’s content alone justify a monthly subscription.

“That’s going to continue to be the priority,” he said.

The CFO admitted that an ad-based less expensive option of Discovery+ actually generates higher ARPU than the ad-free SVOD, adding that so-called “ad-lite” SVOD versions are being considered for rollout in Europe.

“It continues to be a focus area for us,” he said. “It’s something that’s going to be in the mix going forward. Whether at some point there may be an AVOD-only, subscription-free product, that remains to be seen. But it’s not a priority.”

CFO: Discovery+ SVOD Strong Out the Gate; Eyeing Tokyo, Beijing Olympics to Jumpstart Euro Debut

Upstart subscription streaming video service Discovery+ ended February with a projected 12 million subscribers since launching Jan. 4. The $4.99 monthly service with ads, $6.99 without, offers streaming access to Discovery’s portfolio of branded programming including Discovery Channel, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, MotorTrend, Animal Planet, Science Channel, and the forthcoming multi-platform joint venture with Chip and Joanna Gaines, Magnolia Network, as well as OWN: Oprah Winfrey Network in the United States.

Discovery CFO Gunnar Wiedenfels

Speaking March 8 on the virtual Deutsche Bank’s Media, Internet & Telecom Conference, CFO Gunnar Wiedenfels said the SVOD has performed as expected in the U.S., with plans to launch abroad ongoing.

“It’s early days, but everything we’ve seen so far has just been super encouraging,” Wiedenfels said. “Top to bottom there’s not one metric that’s disappointing. The engagement metrics are looking very strong. We’re making more money on our direct-to-consumer subs two months here out of the gate and we have significant growth potential, and I think pricing potential.”

Indeed, the CFO said subscribers have watched an impressive 93% of the platform’s 55,000-episode content offering.

“It’s all super encouraging,” Wiedenfels said, adding that more than 100 advertising brands are on the platform — a tally that is expected to double in a couple months. “We’re already seeing beyond what we saw in the linear TV world in terms of viewer time and our subscriber base.”

Notably, the bulk of Discovery+ subs are enrolled in the ad-free tier — largely due to the Verizon marketing tie-in that mandates the more -expensive pricing option following a 12-month trial period.

Rollout of the platform internationally includes partnerships with Sky in the U.K., Vodafone, Saudi Telecom, etc. These deals are expected to materialize in the second quarter over a 12-month period, according to Wiedenfels.

“The Olympics [Tokyo Summer and Beijing Winter] should be one the key drivers for the international rollout this year,” he said. “We’ll see the order of magnitude, but we’re very excited about it.”

International streaming expansion has already been started by Discovery’s former Dplay video-on-demand platform that has been transformed into Discovery+. The media giant operated Dplay in Italy, Japan, Netherlands, Nordic countries and Spain.

The streaming platform is eyeing 70 million U.S. homes, and 400 million internationally. Global rollout would focus on wireless distribution via portable devices.

“We’re not talking about 700 million TV homes, we’re talking billions of connected devices,” Wiedenfels said. “Total expansion of our addressable markets.”

The CFO said rollout of the service would take longer due to individual country challenges, including timelines and existing distribution deals. Wiedenfels doesn’t think there will be a drop in linear carriage agreements with the advent of streaming video.

“We should be able to find win-win common ground in partnerships,” he said. “We have to acknowledge that the landscape is changing. These discussions are now one notch more complicated than they used to be [due to streaming]. I feel very good about and our [linear] partners are very excited.”