The streaming wars of the last few years have entered a new phase, as formerly ad-free platforms prepare to open their walled gardens to advertising and smaller players consolidate, creating new avenues and opportunities in a surging over-the-top (OTT) ad market that reached nearly $1.3 billion in 2021.
In recent weeks, Disney+ announced it will launch an ad-supported tier in late 2022, while Netflix CFO Spencer Neumann noted that while ads are not in its current plans, "never say never." Now, Discovery has revealed, as part of its upcoming acquisition of AT&T's WarnerMedia, Discovery+ and HBO Max will eventually be combined into one streaming platform.
While details about the proposed offering are scarce, the new platform will immediately become one of the bigger players on the streaming landscape, one that offers a larger reach for advertisers on its ad-supported video on demand (AVOD) tier.
"By bringing together Discovery+ and HBO Max, the combined channel will be able to deliver audience at scale to meet almost any advertiser target. That positions the firm well against even the largest competitors, including Disney+ and Netflix, both [of] which have signaled they may start accepting ads," Todd Krizelman, CEO and co-founder of MediaRadar, said in emailed comments.
Two great tastes, together
Discovery's $43 billion acquisition of WarnerMedia, which will create Warner Bros. Discovery, is expected to be completed by the end of April, sources told Variety. Discovery investors voted to approve the deal last week, and it has already been approved by the Department of Justice and both company's boards of directors.
While Discovery+ and HBO Max will likely be offered as some sort of bundle in the short term, Discovery anticipates a combined platform being available not in weeks or years but in several months, after it clears technical hurdles. Currently, Discovery+ accounts for the bulk of Discovery's 22 million worldwide customers, while HBO Max and HBO neared 74 million subscribers last year.
Both Discovery+ and HBO Max offer ad-free and ad-supported tiers, and while it is unclear how those tiers would be priced in a combined platform, the company expects big things from the offering, explained Discovery CFO Gunnar Wiedenfels, who broke news of the company's plans on March 14 during the Deutsche Bank 30th Annual Media, Internet & Telecom Conference, Variety first reported.
"I can't wait to see the first combined direct-to-consumer metrics because, in theory, the acquisition power of HBO Max, combined with the retention power of the Discovery content I think is going to make for a blowout DTC product, and that should certainly drive very healthy revenue growth for years to come," Wiedenfels said.
With their different audiences and approaches to content, a merged HBO Max-Discovery+ could help advertisers reach a larger, more four-quadrant audience than the individual platforms can. HBO Max's audience is about 50-50 male to female, and is more likely to be under 45 years of age than the Discovery+ audience; Discovery+ audience skews more than 68% female and is more likely to be over 45 than that of HBO Max, per an analysis AI company Helixa shared with Marketing Dive.
"Discovery and HBO Max have likely done significant audience overlap analysis and determined that combining the services into one platform will likely lead to higher recurring subscription revenue. This implies there is relatively low subscriber overlap today," Krizelman said.
What advertisers want
Merging HBO Max and Discovery+ into one service could also help its corporate parent pull away from competitors including Peacock and Paramount+ — and gird itself against Disney+ and possibly Netflix — as a better destination for advertisers by doubling down on a better ad experience.
While consumers report seeing more ads on Discovery+ (50%) and HBO Max (42%) than other platforms, they also find that amount of ads reasonable (60% and 55%, respectively), according to Hub Entertainment Research's "TV Advertising: Fact vs. Fiction" report. Plus, consumers report paying attention to most or all of the ads and promotions on Discovery+ (39%) and HBO Max (38%), outpacing other platforms. This well-regarded ad experience — in addition to its expanded content play — could help raise both the number of ad-supported user and advertisers.
"For consumers eager to simplify their stack of SVODs, a combined Discovery+/HBO Max will cover all the bases: premium TV shows from HBO, movies from Warner Brothers, unscripted TV from Discovery+," Jon Giegengack, Hub's principal and founder, said in emailed comments.
"Viewers who can't tolerate ads will still be able to watch ad-free," he added. "But the merger will also give HBO Max more content to attract ad-supported users, and in our research the ad-experience on Discovery+ consistently gets among the highest ratings."
