A Tale Of Two Streamers

In recently quarterly earnings, Netflix and Warner Bros. Discovery revealed markedly different paths for executing on their commercial-free and ad-supported streaming tiers ahead. One of them signals trouble.

Since mid-July, both media trades and the consumer news have been watching media businesses’ earning reports. The focus this time seems to be streaming — particularly subscriber counts and ad sales forecasts. Recent front-page headlines from the Wall Street Journal include:

The Disney article explains that the company’s premium streamer, Disney+, will soon include an ad-supported option. It’s interesting to me that the good news about the company’s combined subscriber count of 221.1 million customers from Disney+, Hulu, and ESPN+ exceeding Netflix’s reported 220.67 million is relegated to the paragraph that is continued later in the section.

Unlike Disney, Netflix and now Warner Bros. Discovery (WBD) are focusing their streaming efforts on a single channel to be available in both commercial-free and ad-supported versions. Each company’s strategy and blueprint for implementation speaks volumes about its planning horizon and vision for the future.

Netflix appears to be embracing the increasing and evolving consumer appetite for on-demand content. WBD seems to be treating it as a necessary evil; streaming is becoming the “Cliff’s Notes” version of its storied linear brands. Three key differences between the two approaches reinforce my view.


The conventional wisdom seems to be that WBD’s canceling of Batgirl (and other titles including Scoob!: Holiday Haunt) is primarily a tax strategy. The company can write off the $90 million spent to produce it and, in the process, improve overall reported results. But these cuts also mean less new programming for what was HBO Max; the channel strategy is no longer one of new releases and exclusive content. As a recent report from Lightshed partners observes, “the clear message from WBD is that everything beyond a handful of core franchises is now open for licensing.”


Netflix, on the other hand, seems to be doubling down on first-run original content. On Aug. 8, Eriq Gardner from Puck reported that Netflix had just come to a new tentative agreement with SAG-AFTRA. It appears to be a big win for the union and a bit of a metaphorical thorn in the paw for Hollywood studios, which are already facing California legislative pressure to improve some conditions for actors. Gardner says: “Hollywood’s studios are being told to do what Netflix just did or face the California legislature’s wrath.” The need to keep its content pipeline full must be a big part of the reason Netflix negotiated such an agreement.

Customer Experience

WBD’s challenge here is the need to combine two networks, including very different tech stacks for HBO Max and for Discovery+, into one yet-to-be-named channel. Cablefax’s Sara Winegardner reports that JB Perrette, the company’s CEO-president for global streaming and games, summed this up on the company’s earnings call by saying: “HBO Max has a competitive feature set, but has had performance and customer issues. Discovery+ has best-in-class performance and consumer ratings, but more limited features.” Regardless of how straightforward this sounds, combining technology is never easy and is always expensive.

When it comes to Netflix, the company has spent years perfecting its content recommendation engine to create a best-in-class customer experience. Its challenge will be to integrate ad sales in a way that doesn’t subtract from that experience while meeting or exceeding customer expectations.

Ad Sales And Ad Sales Technology

Netflix selected Microsoft to develop its ad sales platform. There’s been much discussion about the pluses of this decision — they are not competitors, Microsoft also has international experience, they are used to developing technical solutions and the company certainly has cloud computing expertise. Additionally, it has been rumored that Netflix was looking for a significant minimum ad guarantee from its partner, a guarantee that Microsoft was willing to make.

Microsoft’s strong video games business and its potential to help Netflix’s nascent video games offering may have played a role in the decision. Other speculation includes the possibility that a partnership now lays the groundwork for Microsoft to acquire Netflix at some future date.

The big question is Microsoft’s limited experience with advertising sales and service. To get the premium prices Netflix Co-Founder, Chairman and Co-CEO Reed Hastings promised in the company’s earnings call ($80 per thousand viewers), it won’t be enough to repeatedly serve the same ad to all viewers. Netflix will have to rely on its vast store of customer data to ensure that ads are managed as carefully as other content. Additionally, the company faces the prospect of renegotiating all the third-party contracts to add the right to sell advertising in its licensed programming. Observers expect a slow rollout starting with unskippable ads at the beginning and end of wholly owned content.

As I see it, with Microsoft as its partner, there’s not much downside to Netflix’s missing its planned first quarter 2023 target for initiating ad insertions. If Microsoft has guaranteed ad sales, Netflix is covered whether the platform is working or not. The only issue will be whether the company will be willing to launch the promised lower-cost tier without the ad solution and risk cannibalizing its premium product.

On the other hand, both of the WBD services have experience with ad sales. That company’s challenge will be the integration of technology and sales cultures while continuing to bring in budgeted advertising revenue.

Will Ad Support Really Make The Difference?

There are a number of other challenges that both of these companies will face as they work to fundamentally change their businesses; among them is increasing competition for advertising dollars.

WBD is also staring down a short planning horizon. As a result of the merger, the company has more than $50 billion in debt on its books. The pressure is on for it to deliver billions of dollars in promised synergies. Staff layoffs are, and will continue to be, a part of the equation. This means fewer people with important historical knowledge to execute on the vision along with very real possibility of alienating customers.

Charles Dickens ends A Tale of Two Cities with the famous line, “It is a far better thing that I do than I have ever done before…” That may well be the mantra underlying the strategy for both of these channels. However, I’d caution that they also consider the rest of the sentence — “it is a far better rest that I go to than I have ever known.”

Depending upon your viewpoint, that clause can be considered as either optimistic or pessimistic. I’d argue that the same is true for the future of these new one-channel-two-version strategies. For WBD, the collapsing of multiple channels with valuable brand identities into one ad-free and one ad-supported version of the same channel, which doesn’t even have a name, may well mean decline or even death. For Netflix, adding a lower-priced ad-supported version of its well-known service may signal a rebirth.

Former president and CEO of the Media Financial Management Association and its BCCA subsidiary, Mary M. Collins is a change agent, entrepreneur and senior management executive. She can be reached at [email protected].

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