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Zaslav's Streaming Struggles: Investors Unimpressed Despite $100M Profit, Can Max Rise?

HBO's direct-to-consumer profit of $100 million last year includes revenue from licensing shows to Netflix. Zaslav has cut marketing expenses and reduced selling, general, and administrative expenses. The streaming business lost subscribers in the US last year.

In an effort to boost profitability and appease investors, David Zaslav, CEO of Warner Bros. Discovery, set out to make his streaming business a success. While he achieved a direct-to-consumer profit of approximately $100 million last year, investors remain unimpressed as the company's shares have dropped nearly 24% this year.


However, investors have recognized that the reported profit includes all of the money generated by HBO, including fees from pay-TV operators and revenue from licensing shows to Netflix. In fact, licensing sales grew by 18% in 2023, contributing to the overall profit.


Zaslav's strategy to cut costs has been effective, as he has reduced marketing expenses by hundreds of millions of dollars. This has resulted in a 32% decrease in selling, general, and administrative expenses, primarily due to more efficient marketing-related spend.


Despite his cost-cutting measures, Zaslav has yet to articulate a clear strategy for growing the business. While he merged HBO Max and Discovery+ into Max, a general entertainment platform competing with Netflix, the streaming business actually lost subscribers in the US last year.


The challenge for Zaslav and his streaming chief JB Perette is to find a way to turn Max into one of the top streaming services in the world. They plan to expand into new markets, including France, Latin America, and Australia, within the next 18 months. Additionally, they will crack down on password sharing, taking a page from Netflix's playbook.


One option for Zaslav is to reverse course and build a smaller, more focused business around HBO. This would involve selling CNN and shutting down or selling many of the Discovery networks. However, it seems that Zaslav is not interested in this approach, as he is reluctant to jettison businesses and reduce the company's portfolio.


Another alternative would be to abandon streaming altogether and follow the model of Sony, which focuses on selling shows rather than competing in the streaming market. However, this would require significant restructuring, including firing employees and shutting down or selling TV networks and streaming services.


Despite the challenges, Zaslav and Perette remain confident in the growth opportunities for Max. They believe that by broadening the streaming service's audience and adding reality TV content, they can attract more subscribers and position Max as a top player in the streaming industry.

 
  • HBO's direct-to-consumer profit of $100 million last year includes revenue from licensing shows to Netflix.

  • Zaslav has cut marketing expenses and reduced selling, general, and administrative expenses.

  • The streaming business lost subscribers in the US last year.


Source: BLOOMBERG

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