Warner Takes Huge Risk by Focusing on Profit Over Users

Comment

Reed Hastings of Netflix can relax a little. HBO Max is about to become a much less aggressive competitor in the streaming market.

That’s the implication of a sweeping strategic shift outlined Thursday evening by top executives at Warner Bros. Discovery Inc., the company formed from the combination in April of Discovery Communications and WarnerMedia, previously owned by AT&T Inc. On a call with Wall Street analysts, Chief Executive Officer David Zaslav and his lieutenants made clear they want to return the Warner business to one focused on making as much money as possible, away from the one run with a consumer-centric philosophy espoused by WarnerMedia’s previous CEO, Jason Kilar. It’s a big risk.

Among other things, the Warner team said it would abandon the idea of making movies just for release on streaming, something Kilar’s team had initiated; abandon the previous management’s strategy of preserving Warner-made content mostly for HBO Max; and bring back the traditional Hollywood focus on “windowing,” the idea of releasing the same movies or shows on different media at different times to maximize revenue. Oh, and Warner confirmed plans to combine HBO Max and Discovery+ into one service, to be launched next summer.

Along the way, they also left little doubt the new service will cost consumers more money. Streaming is “underpriced,” Zaslav said.

His strategy is an enormous step back for consumers — and one that risks backfiring. For decades, television companies operated by ignoring what suited viewers. TV networks jammed so many ads into shows that television became unwatchable. The price of cable and satellite TV rose steadily. A big movie didn’t appear on TV until long after it opened in a theater because studios wanted to cash in by selling DVDs.

READ ALSO  Jane Campion: Netflix Being ‘More Picky’ Bad for Film

That set the scene for Netflix to emerge about 15 years ago offering a more consumer-friendly approach of low-cost, ad-free streaming with a deep mix of original content, including new big-budget movies. This proved enormously popular. Netflix has about 221 million global subscribers, with 73 million in North America. No other service comes close (except possibly Amazon Prime Video, whose video is a feature of Prime).

To be sure, that low-cost streaming model hasn’t proved to be a hugely profitable one yet. Netflix has only recently begun to show that it could make real money — and it did so in part by raising prices to a point that it has lost some subscribers. For Zaslav, who comes out of the old-school TV industry that made a virtue of essentially printing money, it’s understandable the Netflix approach is unappealing. Let’s also not forget that Warner Bros. Discovery is a company with roughly $50 billion in debt and expectations of generating $9 billion to $9.5 billion in earnings before interest, taxes, depreciation and amortization in 2022. The changes being pursued by Zaslav’s team will help generate badly needed extra revenue. Company executives projected 2023 Ebitda of $12 billion.

The danger is that the strategic shift leaves Warner Bros. Discovery vulnerable to the competition. In the entertainment universe, the power has shifted away from big TV companies and toward viewers more than Zaslav seems to realize. He is operating with a 1990s’ mindset. HBO Max’s competition includes, apart from Netflix, services run by tech companies such as Apple TV+ and Amazon Prime Video, which could also be said to operate with a consumer-centric philosophy. They also have deep financial resources and don’t rely on making big profits in television, which gives them an advantage over traditional entertainment companies. By raising prices and reducing the amount of truly exclusive content on his streaming services, Zaslav is only giving viewers a reason to switch.

READ ALSO  In Netflix's 'Descendant' The Past Bubbles Up to the Surface [MVAAFF Review]

He needs to accept the reality that the old days are gone. Television will never again be a monumentally profitable business. Streaming needs to be profitable enough to draw investment, for sure. But times have changed. There’s no going back.

More From Writers at Bloomberg Opinion:

• Blocking WarnerMedia Deal Won’t Fix Streaming: Tara Lachapelle

• Netflix Is Winning Streaming’s Own ‘Squid Game’: Tara Lachapelle

• Disney Shares Netflix’s Pain on User Sign-Ups: Tara Lachapelle

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Martin Peers is a Bloomberg Opinion columnist covering tech and media. Previously, he was deputy editor of the Wall Street Journal’s Heard on the Street column and managing editor of the Information.

More stories like this are available on bloomberg.com/opinion

Tinggalkan komentar