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To date, Warner Bros. Discovery (WBD -6.56%) has taken a dual approach to how it prices its streaming services. Both HBO Max and Discovery+ offer premium ad-free tiers, with secondary ad-supported plans that are offered for a few dollars less.
Now the entertainment company is considering a third option — a wholly ad-supported offering that is free to subscribers. Such a move could be a real jolt to the video-on-demand industry.
Image source: Getty Images.
Warner Bros. Discovery president and CEO David Zaslav told investors during a recent earnings call that the company plans to merge HBO Max and Discovery+ into a single streaming platform. The service will roll out in the U.S. sometime next summer, after which the company will then focus on the prospect of launching a free ad-supported streaming TV (FAST) service.
As Warner Bros. Discovery’s head of streaming, JB Perrette, explained on the call, the industry has experienced a shift from “free-to-air linear [TV] to free-to-view streaming.” Perrette noted the company currently licenses much of its content to third-party ad-supported players but says Warner Bros. Discovery is going to reassess those arrangements so it can work out “how best to play in this growing business.”
Streaming video is prevalent in the U.S., with 88% of households signed up to at least one service and 22.3% having at least one FAST account.
In terms of FAST players, Tubi, which is owned by Fox (FOX 0.71%), claims 51 million active users, while Pluto, a division of ViacomCBS (PARA -2.06%), has 68 million. Considering HBO Max currently has just under 77 million subscribers across its ad-free and ad-supported tiers, a FAST tier could certainly boost its customer base — as long as it doesn’t cannibalize its premium offerings.
In the discussion with Warner Bros. Discovery stakeholders, Perrette said any FAST service would have a separate library as its subscription-based offering. He suggested the company has a “lot of content that wouldn’t necessarily make sense in a premium product” but could fit well in a FAST package. Perrette did not call out any particular shows or movies, but looking at how others operate, it’s possible to infer what Warner Bros. Discovery could do.
Tubi offers many classic movies such as Jaws and Malcolm X, along with vintage TV shows like The Flintstones and the Adam West version of Batman. It also carries lesser-known titles like The Perfect Match, The Queen’s Corgi, and Twisted House Sitter. Pluto’s on-demand content includes movies like Clerks, Mars Attacks, and The Hitman’s Bodyguard, alongside shows such as Blue Bloods, Jeopardy, and Clarice.
Warner Bros. Discovery has a vast library of films and TV shows, so following the models above, it could certainly bring much of that content to its FAST plan — especially if it appealed to advertisers. It’s feasible many marketers would want to tap into the nostalgia factor, showcasing their projects alongside truly classic movies including The Wizard of Oz, Citizen Kane, and Singin’ in the Rain, as well as TV shows like Smallville and classic Looney Tunes cartoons.
There is of course reason to question whether a FAST offering might negatively impact Warner Bros. Discovery’s unified streaming service. Moving content from a premium service to a FAST platform could mean leaving money on the table. However, the company is arguably doing that already by licensing out its content to other companies who then leverage it to sell their own ad slots.
As Warner Bros. Discovery notes, any FAST product will take time to put together. But for those watching the market, it’s worth monitoring what vintage movies and shows the company starts to peel away from other companies. If that happens at a significant rate, it seems likely Warner Bros. Discovery is serious about competing at all levels of the streaming industry.
Tom Wilton has no position in any of the stocks mentioned. The Motley Fool recommends Warner Bros. Discovery, Inc. The Motley Fool has a disclosure policy.
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