WarnerMedia and Discovery are on the cusp of officially closing their deal. With the change in leadership at the new Warner Bros. Discovery, will there be pricing changes for the new conglomerate’s flagship HBO Max streaming service?
Insiders say there aren’t any immediate plans to alter HBO Max’s pricing scheme — in the U.S., it currently costs $14.99/month without ads, the same as it did when the service debuted in May 2020, and $9.99/month with ads.
Similarly, it’s likely that Discovery Plus will remain at $6.99/month without ads and $4.99/month with ads for the time being. “I don’t think [pricing] is going to be sorted right out of the gate,” says a source familiar with the companies.
But Warner Bros. Discovery wants to pool its streaming properties together, on the theory that a bigger, broader content offering will reel in more new subscribers. When the deal closes, two of HBO Max’s key architects are exiting: WarnerMedia CEO Jason Kilar and HBO Max EVP/general manager Andy Forssell, both early execs at Hulu. JB Perrette has been named president/CEO of Warner Bros. Discovery Global Streaming and Interactive Entertainment; in that role, the former head of Discovery’s streaming and international businesses will now oversee HBO Max and Discovery Plus, as well as all direct-to-consumer and gaming operations.
The plan is for HBO Max and Discovery Plus to be fused into one service eventually. But as for how WBD gets there, the crystal ball is hazy.
“[W]e believe in a combined product as opposed to a bundle,” Discovery CFO Gunnar Wiedenfels, set to become chief financial officer at Warner Bros. Discovery, said at an investment conference last month. “We believe that the breadth and depth of this content offering is going to be a phenomenal consumer value proposition.”
A combined HBO Max-Discovery Plus will arrive “hopefully not in years, but in several months,” the CFO added. “Building one very, very strong combined direct-to-consumer product and platform, that’s going to take a while.”
At some point, WBD would be in a position to raise streaming prices — as many of its rivals have. When HBO Max came out at $15 per month, it was the priciest of the general-entertainment subscription VOD services. WarnerMedia had effectively created a price floor for itself: Subscribers of the legacy HBO service were paying $15 per month, and given that HBO Max is a superset of HBO it would have been untenable to undercut that. (Indeed, the pre-launch industry speculation was that HBO Max would come out of the gate at a higher price than classic HBO.)
Today, Netflix’s standard plan is $15.49/month in the U.S., after the streamer enacted three price hikes over three years. Last year Disney Plus raised its price by a buck, to $7.99/month. While the low price point has helped the Mouse House grab market share, WarnerMedia execs have cited HBO Max’s much higher average revenue per user (ARPU) than Disney Plus as a salient metric. Disney also upped the price of Hulu’s on-demand plans by $1 per month last fall, while the annual price of Amazon Prime membership in the U.S. just went up by 17%.
The question is: Will the forthcoming merged streaming service from WBD, whenever that may arrive, simply be the sum total of the monthly prices of HBO Max and Discovery Plus? At the conference, Wiedenfels didn’t talk about potential pricing. But there’s precedent for actually lowering prices when services are bundled into a single purchase plan.
Disney, for example, sells the “Disney Bundle” of Disney Plus, Hulu and ESPN Plus for $13.99/month with (Hulu ad-supported) or $19.99/month (Hulu ad-free) — a 36% or 29% discount, respectively, compared with purchasing the trio separately. In addition, Paramount is selling bundles of Paramount Plus and Showtime for $11.99 (with ads) or $14.99 (no ads), discounts of 25% and 29%, respectively.
Companies offer discounted bundles because, in industry lingo, they’re “stickier”; i.e., customers are less likely to cancel if they take more than one service from a provider. The net effect is to increase average revenue per customer, while (in theory) the fixed cost of supporting an individual subscriber/account remains about the same.
And consumers like bundles. According to a recent Nielsen survey, 46% of U.S. viewers feel overwhelmed by the growing number of services and platforms — and 64% said they wished there was a “bundled video streaming service” that would let them choose which video streaming services they wanted.
Here’s what could happen going forward at Warner Bros. Discovery: The company might raise prices on the individual services (HBO Max and Discovery Plus) for those who choose to keep them as standalones, but offer a relative price break on a combined service — which would be a carrot for subscribers to spend more to get the bigger package. Conversely, WBD could price HBO Max-plus-Discovery Plus lower than the sum of the separately sold parts while keeping the individual services’ pricing unchanged.
What the company will want to avoid is making existing customers feel like they’re getting force-fed something they don’t want for a higher price, because that would trigger a big wave of cancellations. Ultimately, WBD wants to take the HBO/HBO Max base of 73.8 million subscribers and Discovery’s 22 million (as of year-end 2021) and turn them into something more valuable together.