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Discovery Expects Big Savings Combining DTC Tech, Marketing Spending

Discovery
David Zaslav (Image credit: Discovery)

While it’s still too early to disclose plans for combining or bundling HBO Max and Discovery Plus, Discovery is counting on big savings by putting both direct-to-consumer streaming services on a single tech platform and coordinating their marketing spending.

After Discovery acquires WarnerMedia — which Discovery CEO David Zaslav, speaking on the company’s third -quarter earnings call Wednesday, said was on track for a mid-2022 close — the company will also have to work out its relationship with Amazon. 

Zaslav also announced that Discovery’s Gunnar Wiedenfels will be the chief financial officer for Warner Bros. Discovery when the deal is completed.

WarnerMedia lost 1.8 million domestic subscribers because it decided to pull HBO Max from its channel store. Discovery still works with Amazon.

“The’ve obviously been a very good partner of ours on the Discovery side,” Zaslav said. “Obviously, we want to compare notes with the HBO team at the right time.”

Zaslav said the company wants to get its products to as many consumer as possible, but it also has to take into account the data element of the customer relationship — a sticking point for HBO Max.  

“If we think we can still get the customer relationship, but get in front of more people with the right economics,“ Zaslav said. ”I think it‘s one that we will certainly remain very open to. So, we haven't made a decision definitively, but we are remaining very open.” 

While Zaslav didn’t say much about how HBO Max and Discovery Plus might be combined, he said that former Disney exec Kevin Mayer would be consulting on the companies DTC strategy.

Zaslav said that content was the most important part of the DTC plans. Both Discovery and WarnerMedia plan to continue to increase content spending as the combination approaches.

“Assessing the overlap in respective subscriber basis, at least here in the U.S., we believe less than half of Discovery Plus subscribers are also HBO Max subscribers, which with the right packaging provides a real opportunity to broaden the base of our combined offering,” he said.

“It's quite clear that the winners in streaming are and will be those companies that can provide consumers with the best quality stories, the most appealing content choices, personalized and simple products, and all at a great value. We expect our highly complimentary combination will drive such a winning value proposition and will be reflected across key operating metrics over time,” Zaslav said.

Internationally, Zaslav said Discovery is launching its streaming product in Canada, Italy, Brazil, and the U.K. Some of those are markets where HBO Max hasn’t launched or can’t because of contractual restraints.

Zaslav said that between the two companies, they offer content with broadcast appeal, from movies and scripted shows to reality and lifestyle, with news and sports sprinkled in. That could me a bundle might be best, in order to limit churn. In the case of news, and WarnerMedia is making plans to launch CNN Plus, it’s not clear whether a combined product or separate offering are best.

“We‘re continuing to experiment in Europe,“ he said. ”On the news side, we've been experimenting ourselves. And in Poland, we went independent. Now we're packaging it together,” he said.

Discovery is counting on significant savings by putting all of its DTC products on a single tech platform. 

“There will be meaningful cost savings from combining into one platform. I think there also will be meaningful consumer benefits from combining into one platform,” said JB Perrette, president and CEO of Discovery Streaming and International.

“There may be two phases to this, where there may be an initial phase, which allows for more of a quick bundling of services and a second phase, which eventually allows for, obviously, a common service on one tech platform,” Perrette said.

“There's roughly $6 billion in technology and marketing spend between the two platforms,” Wiedenfels added. “I have no doubt that we will, out of the gate, even in the first phase before fully aligning tech platforms will be able to get a lot of leverage out of the combined marketing spend.”

Overall, Wiedenfels said the combined company will have far less debt than originally anticipated. That will give Warner Bros. Discovery more flexibility to invest in other initiatives.