JB Perrette, President and CEO of Warner Bros. Discovery Global Streaming and Games, speaks onstage during a Warner Bros. Discovery Streaming press event April 12, 2023 in Burbank, California.
Jeff Kravitz | Getty Images
As humble as he may be Warner Bros. Discovery CEO David Zaslav proved this week that he’s definitely a namedropper.
Warner Bros. Discovery on Wednesday unveiled its new streaming service, which offers a combination of programming from HBO Max and Discovery+. It will launch on May 23 in the US, later this year in Latin America, and the rest of the world in 2024. And it’ll be called “Max” — sans “HBO.”
On the surface, Warner Bros. Discovery’s decision to drop the HBO Max name is a logical marketing decision. Take a closer look, and it begins to resemble a microcosm of an existential tension that lies at the heart of the company – and the media industry more broadly.
The company is trying to compete Netflix And Disney to be a winner in streaming while spreading a message of financial discipline that deprioritizes adding streaming subscribers. It’s a matter of quality versus quantity, and Warner Bros. Discovery tries to play both sides.
“Max is where consumers can finally say, ‘Here is a service that not only has something for everyone in my household, but something great for everyone in my household,'” said JB Perrette, the company’s head of streaming , during a presentation introducing Max Wednesday in Burbank, California.
HBO Max no more
Perrette explained Wednesday why Warner Bros. Discovery removed the HBO portion of the name from the new service. HBO is synonymous with adult entertainment, and Max will focus on providing programming for children and families, he said.
“We all love HBO,” Perrette said. “It’s a brand built over five decades to be the offbeat, game-changing trendsetter in adult entertainment. But it’s not exactly the place where parents would most easily drop their children. Not surprisingly, the category hasn’t fulfilled its real potential on HBO Max.”
In this photo illustration the Warner Bros. Discovery logo seen on a smartphone screen with the HBO Max and Discovery Plus logos in the background.
Rafael Henrique | Light Rocket | Getty Images
Warner Bros. Discovery executives felt that the HBO name actually limited the audience for the streaming service because it put off potential viewers. They also felt that the flood of Discovery reality TV programs set to join the platform, such as “Dr. Pimple Popper,” “90 Day Fiance” and various HGTV shows, which serve as background television rather than a fare, could be watered down for office water-cooler talk.
“HBO is not television. HBO is HBO. It has to stay that way,” Perrette said at the event. “We’re not going to push it to the breaking point by forcing it to adopt the full breadth of this new content offering if we had kept the name in the service brand.” In doing so, we will better highlight our unparalleled range of others and showcase content and brands that will be key to increasing the appeal of this enhanced product.”
The company’s reasoning is rational. HBO caters to a specific audience, but it also doesn’t target a specific audience. HBO fans won’t be unsubscribing from the service in response to the Max name, but some people who have been put off by HBO may be signing up now, once the adult brand gets through the deluge of clearly non-HBO content coming to the service , has been covered.
Evolution of streaming
When HBO Max first launched, AT&T and WarnerMedia executives emphasized to subscribers that this new app is first and foremost the home of HBO. Now, about 80 million subscribers later, that point is less important. Those who want HBO already know where to find it, and HBO Max will just turn into Max on most platforms.
Streaming is entering its “teenage years,” Perrette said, and Max as a name makes more sense for continuing to add subscribers worldwide in a slower-growth world.
This would be the end of the story if Warner Bros. Discovery’s stated goal was to maximize (no pun intended) the number of subscribers who sign up for Max.
That was every media company’s goal when Zaslav agreed to merge Discovery with WarnerMedia in 2021. But according to Zaslav, that is no longer the priority.
“I’d rather have 100 million subscribers or 150 million subscribers and it would be really profitable than trying to go for a big number and end up losing money,” Zaslav told CNBC’s Julia Boorstin after Wednesday’s presentation. “We look at what people are watching on Max and we can see exactly what they like and don’t like. And some of the stuff they don’t see we can put on a free AVOD [advertising-supported video on demand] platform, and some of the stuff that they don’t see we can’t keep exclusively on Max, but we might as well sell it to others.”
“We’re relentlessly focused on creating great content and making money in every way we can,” he said.
The Media Hedge
With its new streaming strategy – and Max taking center stage – Warner Bros. Discovery is hedging its bets.
The company has Discovery+ available for customers who are happy to pay $5 or $7 just for Discovery programming. Perrette said the company “doesn’t want to leave any of its profitable subscribers behind.”
Zaslav also alluded to Warner Bros. Discovery’s free ad-supported service, which the company says is due out later this year.
Warner Bros. Discovery could have kept HBO Max as well. For those customers who wanted both Discovery+ and HBO Max, it could have offered a bundle at a discounted price. That was Disney’s strategy, offering bundled opportunities to mix and match Hulu, ESPN+, and Disney+.
Instead, the company has loaded a service with everything it has, which may also include some news from CNN and sports like NBA or NHL games. Zaslav said on Wednesday he would have more details on this “in the coming months”. Don’t forget that Zaslav scrapped CNN+ last year after only about a month of its existence as a standalone streaming option.
Warner Bros. Discovery builds Max as a one-size-fits-all option to ensure it lasts in an ever-accelerating post-cable world.
But Zaslav also tells investors that he’s fine with capping Max’s growth. Making money is more important to him than competing with Disney and Netflix to become the world’s biggest streamer.
It’s a delicate balance: Disney, Paramount Global, Komcast‘s NBCUniversal and even Netflix all fight against the same forces. Investors turned to the streaming growth-at-all-costs narrative over the past year, slashing the valuations of many media and entertainment companies by half.
What is happening now is essentially a hedge. The media industry knows streaming is the future, but growth has slowed. Zaslav has championed the value of the traditional pay-TV package while criticizing the previous WarnerMedia regime’s wasteful spending on streaming. He’s trying to give investors a new reason to get excited about Warner Bros. Discovery. That message, Zaslav hopes, is free cash flow generation.
Warner Bros. Discovery President and CEO David Zaslav speaks to the media as he arrives at the Sun Valley Resort for the Allen & Company Sun Valley Conference July 5, 2022 in Sun Valley, Idaho.
Kevin Dietsch | Getty Images
“Ultimately, I’m a free cash flow guy,” Zaslav said on Wednesday. “We want great talent, but ultimately if we don’t make money off subs, if we don’t have ARPU [average revenue per user]we’re not helping ourselves and we’re not helping shareholders.”
There are some indications that he might be on to something. Warner Bros. Discovery shares are up nearly 50% this year after falling about 60% last year.
But if you take a two-part name — HBO and Max — and just keep the Max, the implication is “big” over “quality.”
That was AT&T’s message. It hasn’t been Zaslav’s message so far.
WATCH: CNBC’s full interview with Warner Bros. Discovery CEO David Zaslav
Disclosure: CNBC’s parent company, Comcast, owns NBCUniversal and is a co-owner of Hulu.