I hope you’re having a good weekend and happy Memorial Day to my fellow Americans. Let’s talk about what business could look like for WarnerMedia Discovery after they merge.
Call it HBO Max
John Malone said he envisions multiple tiers of offerings, and I agree that that could be the winning idea. They could have multiple offerings like the top-level streaming service that includes all their content and no commercials and that’ll be their competitor to Netflix and Disney+, but they could also offer parts of their content at a discounted price, and then further than that, parts of their content along with commercials at an even more discounted price. For example, they could offer the big one, with everything and no commercials for $19.99 a month. But then if you only wanted HGTV content, they could offer that at $4.99 a month. Or if you only wanted HGTV content, and you were willing to have some commercials, they could offer that at $2.99 a month. Those are just hypotheticals, and they’d likely bundle more than one channel at a time, but that could be the model.
The Vision for WarnerMedia Discovery
Whatever they do with the lower level tiers, the tiers with only some of their content, lower value content, and commercials, is whatever they do with that content. I don’t care much about that. My eye is on the prize. My eye is on the Big One. And the Big One is whatever they do with all their content and no commercials, the big streaming service. The Big One is something they could offer as a competitor to Netflix and Disney+ and to me, the Big One is where the money is. If this do this correctly, I think the value of the WarnerMedia Discovery merged company could be very big, and hopefully the market eventually values it in a way similar to Netflix and Disney. So I hope there is a highest-level offering that includes all of their content and no commercials.
The question is, what does that platform look like and what do you call it? I think you go with the one you’ve got just like Shania Twain, and you bet the farm on HBO Max.
The more business experience I get, the more I hate start ups. Buffett, in one of the 1960s shareholder letters wrote about the difficulty of starting a new business from scratch and his preference for buying already established insurance companies and growing them from there. As a person who’s been in business on my own now since 2014, I could not agree more. The thought of starting from nothing makes me want to cry. I could not imagine starting from nothing again, and I’ve seen first hand how hard it is to build business momentum. Forever and always, I’ll be a grow through acquisitions guy as opposed to a start from scratch guy. My hope is that they build on what’s working instead of starting over. And HBO Max is working. In April, CNBC reported that HBO and HBO Max have 64 million subscribers worldwide. That is a serious number and a great base to grow from.
The HBO Brand
Beyond the built in subscriber number, you’ve also got the brand of HBO and the mindshare. People have been “subscribing” to HBO for decades now, when you hear the term “HBO” you think “subscription” and about your television. And there’s a wonderful, high level of quality that is associated with HBO. Build on that! Don’t give that up! People know that HBO is quality and they associate subscribing with the brand. It’s still not TV, it’s HBO.
That is why I think they should call their all-content, no commercial streaming product HBO Max and build on the HBO Max platform. They already have a bunch of subscribers and people associate the brand with subscribing and quality. People do not think of the words Discovery, WarnerMedia, and WarnerMedia Discovery as subscription brands and they just don’t have the mindshare of HBO. I’m a Discovery shareholder and support their Discovery+ streaming efforts and they should be proud of what they’ve done there. But it really doesn’t have the brand value of HBO. I rarely think “I’m going to go sit down and see what my Discovery+ app is offering today.” It just doesn’t have the mindshare like HBO and Netflix and Disney and everyday people don’t understand that Discovery is the brand that owns other channels like HGTV, TLC, etc. And I think that WarnerMedia would be a horrible name. Can you imagine everyday people talking with friends saying things like “do you subscriber to Netflix and WarnerMedia?” or “WarnerMedia has some great stand up specials on it.” Give me a break. WarnerMedia and Discovery are corporate terms that represent corporations, stockholders, and great places to work. They don’t seem like consumer-facing streaming platform names. And if they came up with a new name, assuming it was actually a good name, they run the risk of confusing the marketplace with yet another steaming name. Call it HBO Max.
And finally on the name, HBO Max has the cachet to compete and run parallel to Netflix and Disney+, which is what we want to do business-wise, and hopefully get rewarded for valuation-wise.
“Netflix, Disney+, HBO Max.” They sound good together and they sound like equals. People will say things like, “What streaming services do you use?” and their friends will answer “Netflix, Disney+, and HBO Max.” They’ll be the Big Three of the streaming era.
From here, WarnerMedia and Discovery should also focus on making the HBO Max streaming technology better. It’s still behind Netflix and they need to make it more intuitive and easier to find things in. If I were them, I would keep making HBO Max better and better, and then when the merger happens, you take the technology that runs HBO Max and you base all the secondary apps on that great technology. So then people can subscribe to say, the CNN app, and really like using it and it’ll feel natural, because the NBA on TNT app they subscribe to uses the same platform, etc.
WarnerMedia Discovery has the talent, platform, and content to compete with Netflix and Disney+ and do really good as one of the Big Three. But in order to get there, they should call their all inclusive no commercial streaming service HBO Max, they should invest heavily in the technology behind that app, and then run all their secondary apps on that same technology and just keep making it better and better.
A Magical End Game
That is my vision for WarnerMedia Discovery. And if they execute on that plan, I think current Discovery shareholders like myself will own 29% of one of the Big Three streaming services, our HBO Max will be successfully competing with Netflix and Disney+, and we’ll own an asset that Amazon, Google, or Apple might want to acquire and integrate with their core businesses and empires.
What do you think? What should WarnerMedia Discovery call their most premium app? And should they have an all-inclusive app or should they keep things separate?