WBD: Max, Disney+, Hulu bundle could be household TV must-have

Warner Bros. Discovery generated a DTC profit in Q1 of 2024 and is betting on a bundle of Disney+, Hulu and Max to make it a household must-have for streaming TV entertainment.

The forthcoming bundled offer between Disney and WBD, announced Wednesday, will bring together the Disney+, Hulu and Max SVODs for U.S. consumers this summer at a yet-to-be-disclosed priced. Consumers can purchase the bundle, which will be offered as both ad-supported and ad-free plans, from any of the three streaming platforms’ websites.

Executives on WBD’s first quarter earnings call Thursday discussed the benefits and thinking behind bundling Max with Disney’s streaming services, where it’s looking to pull in each company’s respective strengths (ie kids and family programming from Disney and premium scripted dramas, comedy and non-fiction verticals from WBD) to deliver what WBD believes will be a better and stickier consumer experience.

In opening remarks, WBD CEO David Zaslav reiterated he’s a big proponent of bundling.

“Two of the world’s most storied content companies are joining forces deliver consumers the best and most diverse offerings of entertainment at a very attractive price,” he said, adding that there are real business benefits to be had from the partnership as well.

In terms of price, WBD didn’t disclose details on the call, but as a reference JB Perrette, CEO of Global Streaming and Games, said they’re working to make it “priced very attractively” compared to the cost of a standalone Max subscription (priced at $9.99 with ads and $15.99 ad free) and price of the existing Hulu-Disney+ bundle (priced at $9.99 with ads and $19.99 ad-free).   

And at this point, according Perrette, it doesn’t feel the need to add any additional partners to round out what WBD views as a comprehensive and compelling entertainment package, which spans kids and family, plus premium adult programming, with films and scripted and non-scripted series. By bringing Hulu, Disney+ and Max content together, the partners are looking to serve up a must-have streaming TV package, on par with Netflix or Amazon Prime Video. Those two, Perrette said, have somewhat become utilities in the sense of consumers considering them necessary household subscriptions.

“Our bundle plus one or two of those other services… I think can make up the entertainment experience for most consumers very happily,” he said. “We do think this package can be an anchor tenant of every household’s entertainment experience and we don’t think there’s a need at this point for anything more to it.”

Benefits of the bundle

Bundling, even with would-be competitors, is not a new idea and is a tactic multiple streamers have explored as they look, in part, to grow subscriber value and reduce churn and marketing expenses.

During Thursday’s call, Zaslav said that modest overlap among content across the three services means Disney and WBD have the chance to drive incremental subscriber growth.

And since consumers will need to keep all three services to take advantage of the price discount, WBD expects the bundle with Disney to “increase retention and lower churn” therefore supporting significantly higher lifetime value (LTV) of subscribers. As the bundle gains adoption, WBD will benefit from more efficiencies and greater marketing effectiveness, he added.

On the marketing side, Perrette noted it’s two-pronged, with a significant amount of marketing support coming from both WBD and Disney, across third-party platforms, on-air and the companies’ respective platforms to drive consumers to the bundled offer.  He also cited strong ARPU benefits for both parties from the deal.

Cutting out the middleman

Who is best served to deliver streaming bundles is still somewhat a point of debate in the ecosystem, where WBD sees benefits in cutting out the middleman in some cases.

Telcos such as Verizon have looked to offer streaming bundles alongside mobile and internet service, including a Max and Netflix bundle and through its +play subscription aggregation hub. And traditional cable operators like Charter have included DTC streaming apps – namely the ad-supported version of Disney+ in linear pay TV packages under a new type of carriage deal that also includes marketing DTC apps to broadband only subscribers.  

Disney itself has already seen success by bundling its own Disney+ and Hulu apps, as well as ESPN+, and has taken steps to more closely integrate its own streaming services. That includes a full integration of Hulu content on Disney+ for Disney Bundle subscribers earlier this year, and plans to add an ESPN tile to Disney+ before the end of the year.

And others like Roku and Amazon have worked to create centralized hubs, including where consumers can access and subscribe to multiple services through partner channels.

On the call, Zaslav acknowledged positive results from the Verizon-offered Max-Netflix bundle, saying it’s “doing much better than expected” and provides another example of “more strength together,” with the strategy behind bundles driven by the need for change in consumer experience in a very crowded streaming space.

However, the Disney deal is different in that it represents two major streamers partnering directly to offer combined services to consumers. Zaslav indicated distinct benefits from bundling and going to market directly to consumers with other streamers like Disney, without a third-party in between, noting if they don’t come together themselves “other companies will do it for us.”

He pointed to platforms like Roku, Apple and Amazon as “doing a terrific job of aggregating services” for the consumer experience. But added, “it’s much more efficient, better ARPU and a much better business if we can do it ourselves.”  

With Disney and WBD working together, he noted the companies get all of the data, can work directly with consumers and enhance that experience, as it’s already doing for Max.

And while not looking to pull more partners into the bundle with Disney, Zaslav said the need to be prominent “in all of the major bundles,” is key for the company. WBD is also part of a joint venture with Disney and Fox that plans to launch a DTC sports streaming service this fall using combined assets.

“We want to be in front of all consumers. And we think that we have the entitlement as long as we can continue to provide great content. Whether it’s entertainment, non-fiction, sports, news, and we have content in every language,” Zaslav said.

Bundling internationally, consumers following content

While the upcoming Disney-WBD offer is currently only for US subscribers, bundling’s expected to be a big priority for WBD on the international side, where it’s currently focused on Max expansion including launches in Latin America and upcoming rollouts to 29 countries in Europe.

It’s already engaged in bundling with telcos, mobile and broadband providers as it enters international markets, with distribution relationships in place, and which will continue to be part of the strategy. And WBD intends to explore partnerships and bundles with programmers and other streamers internationally, which Perrette said is on the roadmap in the coming quarters.

A key theme emphasized throughout the call, is WBD’s belief that amid a crowded and fragmented streaming and TV viewing ecosystem where viewers are burdened by numerous options and rising prices, consumers will follow great content.

Perrette noted that there was a period of time around 2010 when companies went down risky financial paths to make heavy content investments across genres to try and be something for everyone. But with a more disciplined approach and by bundling, it gives WBD and Disney to invest in their respective strengths.

“A lot of rationale by pulling these together, it makes us all be able to go back and invest in the areas we really are great at,” he said.

Upcoming to WBD’s slate include series “White Lotus,” and “The Last of Us,” among others.

And with the need to subscribe to all three services to get the price benefit, WBD expects viewers are less likely to churn out even if they don’t watch one service one month, as they’ll see value in one lower price and feel confident about finding something on one of the platforms the next thanks to the breadth of programming available.  

Perrette did cite an expectation for pressure on smaller and independent streamers churn as a result, who he said could start to see more serial churners.

Q1 2024 Earnings results

While executives were positive on the potential for bundling, not everything was rosy for WBD in its latest earnings where it reported a 7% yoy decline in quarterly revenue totaling $9.9 billion and recorded a $966 million net loss.

WBD reported a 20% yoy drop in total Adjusted EBITDA, mainly attributed to declines in the studios business and difficult comparisons to success in the prior year quarter in games from Hogwarts Legacy and a disappointing release of Suicide Squad: Kill the Justice League in the current quarter.  

Networks segment revenue also declined, down 8% yoy, to $5.1 billion. 

The DTC streaming business was a bit brighter, where total revenue was largely flat at $2.46 billion. DTC advertising revenue grew 70% yoy to $175 million. Less third-party international licensing deals drove a 46% yoy decrease in DTC content revenue, which was $99 million in the period. DTC Adjusted EBITDA of $86 million improved by $36 million compared to Q1 2023. 

And Max continued to grow subscribers, adding 2 million in the quarter for a global base of 99.6 million.  Global DTC ARPU expanded 4% yoy to $7.83. Domestically WBD added 700,000 subscribers sequentially for a base of 52.7 million, with ARPU up to $11.72.  Internationally it added 1.3 million subs, for 46.9 million total, with ARPU of $3.75.