What WarnerMedia-Discovery's Streaming-Centric Merger Means For HBO Max and Discovery+

Monday’s bombshell announcement that AT&T would spin out WarnerMedia and merge it with Discovery Inc. rocked the media world ahead of upfronts week. The union will reshape the media landscape and further consolidate the remaining TV entertainment giants by uniting disparate cable networks like Discovery’s Food Network, HGTV, ID and TLC with WarnerMedia’s HBO, Cartoon Network, CNN and TBS. But forget the cable brands: Really, the deal is all about positioning the combined company to better capitalize on the growing global opportunity for subscription and ad-supported streaming, and to keep pace with the likes of Netflix and Disney. That, naturally, has already led to speculation about what this means for WarnerMedia and Discovery's fledgling streamers, HBO Max and Discovery+. The merger “accelerates and assures our place as a fully scaled and differentiated global streaming platform,” Discovery president and CEO David Zaslav, who will lead the combined company, said on Monday. “The direct-to-consumer momentum on both sides will accelerate our ability to be one of the top streaming companies in the world,” he added. But he didn't offer any specifics about what that combined "top streaming company" will look like when the merger is finalized. Many of those details still need to be hashed out in the coming months, leaving plenty of questions about the future of HBO Max and Discovery+. Analysts expect to see another page from the Disney playbook in the form of a streaming-centered bundle that unites the two streamers, but retains each of their separate brand identities. 'All about bundling' “The game here is going to be all about bundling,” Tuna Amobi, a media and entertainment analyst at the firm CFRA Research, told Adweek. “The value proposition is going to be to figure out a way to offer a comprehensive bundling package for consumers that allows them to subscribe at a reduced cost than if they had to subscribe separately.” That view is echoed by other analysts, who say that the relative lack of content overlap is what makes the bundled approach most sensible for the combined company. “As the general entertainment content on HBO Max is complementary to the unscripted content on Discovery+, we expect Discovery/WarnerMedia to pursue a similar bundled distribution approach domestically to grow subscribers across both services,” MoffettNathanson's Michael Nathanson and Robert Fishman wrote in a research note Tuesday. Any bundle is expected to take a page from Disney, which became something of a bundling pioneer when it wrapped up its direct-to-consumer services Hulu, ESPN+ and Disney+ for a price cheaper than subscribing separately to all three. And Zaslav, whose CEO contract on Tuesday was extended to at least the end of 2027, has already indicated that he is fond of Disney’s streaming approach. It’s not only admiration: A bundle can help entertainment companies compete globally by allowing them to be more price-competitive and make consumers less likely to churn off their service. “When you bundle, it may cost you lower [average revenue per user, or ARPU] but ultimately, the benefit in terms of churn and consumer engagement and viewing hours—all of those things are part of the value equation and the lifetime value per subscriber,” Amobi said. “You want to give them a reason to keep coming back, and what the bundle really aims to do is to expose them to as much programming as possible.” Pricing is paramount A HBO Max-Discovery+ bundle, if it happens, would come with its own set of challenges. Both Discovery+ and HBO Max have or will soon have ad-free and ad-supported tiers, requiring a decision made about which tiers to include in any combined offer. (The Disney+ bundle, for example, was initially only available with Hulu's ad-supported tier.) Zaslav has previously said that Discovery+'s $5-a-month ad-light tier is a "breakout hit" that is able to bring in an average of $10 in ARPU, a success story to which a combined company may look to further leverage. The price point will also be paramount—and HBO Max, which costs $15 for an ad-free subscription and hasn't yet announced the price of its forthcoming ad-supported tier, is presently on the opposite end of the streaming price spectrum from Discovery+'s ad-supported offering. Finally, the global roll-out will need to be precisely timed. HBO Max has not yet begun expanding internationally, while Discovery+ is already available in most international markets. While those details will be debated and discussed over the several months, analysts agree that the new company will need to quickly execute its streaming strategy once the merger is finalized. The deal isn’t expected to close until mid-2022, but the companies will likely race to lay the groundwork so they can go out to consumers with their newly combined wares as soon as all regulatory hurdles are cleared. “They want to be ready to go to market almost as soon as they get that green light, and they’ll probably be ready to go to market with a bundle within the first year,” Amobi said. “That work starts now.” How the WarnerMedia-Discovery Merger Will Affect This Year’s Upfront