Warner Bros. Discovery: There was 'nothing disappointing' in Max preview event, analyst says

Jessica Reif Ehrlich, Bank of America Senior Media & Entertainment Analyst discusses an event by Warner Bros. Discovery previewing their new 'Max' streaming platform.

Video transcript

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- Warner Brothers Discovery announcing the new streaming service today called Max. Now Max is going to combine content from HBO Max, also Discovery Plus. Planning a launch on May 23. We want to bring in Jessica Reif Ehrlich, Bank of America's Senior Media and Entertainment Analyst here to break down today's announcement.

So some more commentary here, some more information on what Max is. There's going to be a number of different tiers starting at $9.99 a month. What did you make of the announcement and is it going to be enough to really add subscribers?

JESSICA REIF EHRLICH: Well, there were a lot of things today. The pricing is basically no change from the existing plan, although they did introduce a premium tier, which I think people will trade up to, because there will be a hundred downloads, which is substantial, and up to four streams at a given time. So for a family of four or five, that's a big positive.

But certainly you shouldn't see any churn, because for the same price that people are paying now, there will be an incredible amount of content added to the platform. So the presentation today for the press really went through the breadth and depth of Warner Brothers Discovery's content. And it's just from films to television reality, entertainment, etc.

I could go on and on, but it's basically every genre. And it's a very, very deep library. So the content part of it was incredibly impressive.

- Jessica, then, what do you make of the stock reaction, down more than 5.8% and really fell right as this announcement was happening?

JESSICA REIF EHRLICH: You know what? It's true. But I don't think that there was anything disappointing in today's press event. It was kind of a low-key event with a lot of content. It just, all of the stocks that are highly levered had a terrible day in the market. It wasn't just Warner Brothers Discovery. But it was like nothing in the press event that would cause anybody to sell.

- Jessica, we know Warner Brothers Discovery has been targeting 130 million subs by 2025. Do you think that's achievable?

JESSICA REIF EHRLICH: I think it's more than achievable. I mean, that's a global number. This content is-- I mean, one of the reasons we've been so positive on the company overall is due to their deep, deep, deep libraries. And it's across the board. It's not just Warner Brothers film and television, but all of the companies that they've owned and bought over the years, the old Warner Brothers or AOL Time Warner back in the day.

So it includes Cartoon Network and that library and Hanna-Barbera. But so it's very, very deep. And this is the first chance that consumers will really have a chance to access it. But they needed to do this. They need it to have a new direct-to-consumer platform.

For anybody who likes any HBO show, just download it and go on a plane. And you realize quickly it doesn't work. So they needed to improve the tech platform. They really did not have much of a recommendation engine. They didn't divide it up by members, users in the household.

So it was hard to search. They really needed this upgrade very badly. Now they are going to add news and sports, which drive engagement tremendously. They didn't say when or how. But that sounds like it's in coming months, as opposed to years.

- Be interesting, yeah, to factor in Turner Sports, although they are exiting the regional sports network game, which essentially everyone is right now. It's still follow the leader though, when it comes to Netflix. How does this help bridge the gap and how significant is Netflix's advantage in the space?

JESSICA REIF EHRLICH: Netflix has had a 10-year or longer head start on everybody. So they're doing a phenomenal job. And they're also very broad and appeal to all four quadrants.

So and it's already global. But this is the first step. For Warner Brothers Discovery, this is their first chance to really compete at all. So it will put them on better footing. It will be ultimately over the next two years of global rollout.

But Netflix is already a global platform. And they have other drivers. You know, their content has been great. And they continue to roll out new-- I mean, a lot of their shows are working at the moment. But they also have other things like password-sharing.

This year they're introducing an ad platform, an AVOD platform. They just introduced it on their basic tier, and I'm fairly confident that they will introduce it to their standard or premium tier in coming months. So they have some very specific catalysts that are different than what affects Warner Brothers Discovery or even Disney Plus.

- Well, Jessica, when it comes to Warner Brothers Discovery, I know you got a buy rating on the stock. You're bullish from here just in terms of the growth that we could potentially see in shares. Is this announcement, the Max, the strategy that they've laid out for streaming, is that enough of a catalyst? Is that going to be the trick?

JESSICA REIF EHRLICH: Well, this was anticipated and I mean, it's as good as it possibly could have been. We didn't see the user interface. But the pricing is not a shock, and it won't be a shock to consumers. Consumers are basically getting a lot more, I mean, a tremendous amount more for the same price.

So from a consumer perspective, it's very positive. Their marketing, we'll see, it sounds like the marketing will be a fairly big effort. So it's a positive. But if we step back and say, why are we positive on Warner Brothers Discovery? They spent the last year basically focusing on costs, integrating the company, and really, there was a lot of heavy lifting that had to be done.

These were siloed companies. So they've integrated what they could. You know, wherever there were overlapping functions, they've cleaned that up. It's more efficient. The margins should be better. But this year and going forward is when we should see the benefit of all of that work.

What are the revenue drivers? What can they do on their advertising platform when they have a-- what will their full film rollout look like? They had a great video game that nobody expected, Harry Potter, earlier this year. So they're just beginning to mine that library. And this is a very aggressive management team.

- All right, Jess. Indeed, got to leave it there, Jessica Reif Ehrlich, Bank of America, great to see you as always. Thanks so much.