Discovery CFO talks streaming strategy after WarnerMedia deal

The direct-to-consumer strategy of the merged Warner Bros. Discovery will remain focused on premium subscription services, CFO Gunnar Wiedenfels told an investor conference on Monday.

Speaking during the virtual Bank of America Securities 2021 Media, Communications and Entertainment Conference, Wiedenfels said that the sometimes “less sexy” seeming, traditional linear TV business of both firms has a “very powerful” outlook. After all, it is “still throwing off an enormous amount of cash,” making it a “free cash flow engine” that can “create shareholder value and drive the digital business for many, many years to come” despite the challenges of the streaming world and cord-cutting, Wiedenfels explained.

The streaming business, meanwhile, has much upside, the Discovery CFO said, highlighting: “I have no doubt that we are creating one of the absolutely leading content powerhouses in the world.” The combined company will use a streaming strategy whose outlines are “pretty much ready” as much as is possible before the deal closes. “We have been hard at work here over the summer,” he said without sharing details, which he said would be finalized and unveiled in the future.

He didn’t directly answer a question on whether the merged company would offer the HBO Max and Discovery+ streaming services separately or bundle or combine them. But he did say that subscription streaming services will be the priority, with both firms currently offering “products that are very much average revenue per user-focused, high-value kinds of products” with high engagement.

“Fundamentally, we believe that our content, the content of the combined company for sure, will be valuable enough to merit a subscription payment on an ongoing basis,” Wiedenfels said. “That is going to continue to be the priority.”

He added that management would also be “looking very hard” at advertising-light versions of subscription services in international markets. The launch of a fully advertising-based VOD product is “not a huge strategic priority,” but if one may come to market as a “long tail library content” offering down the line “remains to be seen,” Wiedenfels said.

The Discovery+ streaming service launched in the U.S. on Jan. 4 with a monthly price of $4.99 with ads and $6.99 without ads. It has also been rolling out in international markets. Discovery said in early August that it had reached 18 million paying streaming subscribers worldwide to its direct-to-consumer services, including Discovery+, after ending June with 17 million.

Wiedenfels on Monday also addressed streaming spending trends, saying: “Now with our direct-to-consumer go-to-market strategy for the combined company essentially done, [we are] going to be able to, frankly, spend a little less on marketing right now” and have “dry powder” for after the mega-merger closes, which is expected to happen by mid-year 2022.

Among his team’s other current priorities is making sure the company’s balance sheet is in as good a position as possible ahead of the deal close, Wiedenfels said.

Wiedenfels on Monday reiterated the $3 billion cost savings target from the Warner merger, with no revenue synergies included so far.

The CFO also said that the new company will have a bigger sports footprint than Discovery currently. “Sports in many cases are a loss leader,” he emphasized, urging investors that they shouldn’t expect the merged firm to start going crazy” given both companies have been “financially rational” players in sports rights. The merged firm will be able to benefit from increased scale and global reach to possibly strike global deals that could allow it to better exploit rights, he added.

The CFO on Monday also lauded the U.S. advertising upfront, predicting better U.S. ad growth in the fourth quarter than in the third and expressing optimism about a “strong performance” in 2022. The Hollywood Reporter