Warner Bros. Discovery’s Max streaming service will launch a password sharing crackdown starting later this year, JB Perrette, WBD CEO of Global Streaming and Games, confirmed at an investor conference Monday.
“Password sharing crackdown, which Netflix obviously has implemented extremely successfully. We’re going to be doing that starting later this year and into [20]25, which is another growth opportunity for us,” Perrette said during a fireside chat at the Morgan Stanley Technology Media and Telecom conference, adding WBD isn’t betting on just one thing to expand the business but focused on six or seven avenues to grow streaming, alongside subscriber acquisition and churn reduction.
Perrette didn’t share additional details about what Max’s implementation of account sharing crackdowns would look like. When asked by Morgan Stanley’s analyst to size the password sharing opportunity, the streaming chief acknowledged being conscious of “not overselling it” at this stage.
As mentioned, Netflix has had success with its password sharing crackdown initiatives, following its May launch of paid sharing, helping to boost subscriber growth with new accounts and monetization of previously unpaid users. Disney this year is also pursuing efforts to end password sharing across different households for Hulu and Disney+.
WBD’s Perrette on Monday noted that Netflix was in the market for 17 years before its crackdown, meaning a long time for people to be sharing passwords, whereas Max and its former iterations have been available on streaming for about four years. And with 52 million domestic subscribers as of the end of 2023, its scale isn’t that of Netflix, he acknowledged. That said, “relative to scale of our business, it’s a meaningful opportunity.”
But password sharing crackdowns is only one of the tactics WBD is pursuing on its streaming growth roadmap.
Several vectors for growth
Perrette cited several so-called vectors to drive growth, with increased profitability coming in turn over the next couple of years, as well as initiatives to help drive subscriber acquisition and churn reduction.
Part of that is a stronger content slate, which was particularly light in 2023, in part impacted by dual Hollywood writers and actors strikes.
But globalization the biggest aspect of growth efforts, according to Perrette. That includes Max launches in 39 markets across Latin America last week, and more international expansion planned for later this year including in Europe and Australia. Unlike some streaming peers, he noted WBD’s streaming business generates roughly 80% of revenue within the U.S. and 20% outside of the U.S. – a metric he said is inverted for other large streamers that have already pursued international markets. And WBD is looking to get more people on its ad-supported subscription tier of Max, which is also being exported outside the U.S. with availability in international markets for the first time.
Within the U.S., Perrette cited some room for further subscriber growth but said it won’t be overnight. In particular, he pointed to building up a higher mix of subscribers on its plan with ads domestically, where he thinks its underpenetrated, including through partnerships and bundling, as it has done with a recent bundled offer from Verizon that includes Max and Netflix.
“We’re in conversations with others about trying to do a similar type of offering pushing the ad-supported skew. So we think there’s more opportunity, particularly in that lower price skew to drive penetration,” he said, adding that as the mix continues to change from wholesale subs to retail, there’s also an ARPU benefit.
At the core of goals, media companies are now prioritizing streaming profitability over pure subscriber growth. WBD achieved direct-to-consumer streaming profitability of $103 million in 2023 – marking an improvement from a streaming adjusted EBITDA loss of about $2.06 billion in 2022.
However, a Bloomberg report this week noted that despite achieving its goal of a streaming profit, WBD’s stock almost declined 24% this year, and the article compared figures from 2017, stating HBO as having 54 million domestic subscribers, including Cinemax, and $2.2 billion in profit at that time. Morgan Stanely’s analyst on Monday also pointed back to an HBO business that a few years ago generated $2 billion in EBITDA on less revenue than it generates today and asked Perrette if that fact is relevant to think about when assessing the streaming opportunity for WBD.
“If you stuck to what that [HBO] business would look like today if we had just stayed with it, it wouldn’t look anything like that, so there’s no question this is the right pivot,” Perrette said.
He also appeared to push back on the Bloomberg report, citing the 54 million figure and saying, “just to be clear HBO by itself was never anywhere close to that, I think it peaked around mid-30 [millions].”
Perrette emphasized an aim to get back to those previously mentioned profitability numbers, as HBO’s profitability profile had dropped by almost $5 billion (when comparing over $2 billion in HBO profit several years ago to the more than $2 billion streaming loss in 2022) – but cited relatively quick progress to achieve goals.
“We feel like the fact that we in 12 months have cut that in half is fantastic and as I said, ahead of where we thought we would be when we made the predictions of what our targets were back in the summer of [20]22” after the Warner Media and Discovery merger officially closed, he said.
The company remains very bullish on streaming, Perrette added, and sees a path easily to $2 billion in profitably and above over time. Particularly over the longer term, where he expects “the industry to rationalize” with fewer players, more rational content spending and pricing and fewer players doing “irrational deals” on the retail and wholesale side.
“The profile of this business can be extremely healthy,” Perrett commented, adding WBD’s feeling “very good” about achieving a $1 billion DTC operating profitability target in 2025.
He also cited “a lot of punditry” of late, saying industry commentators are interpreting the state of the streaming industry “as though it’s the bottom of the ninth inning.”
“We fundamentally disagree,” Perrette continued. “We look at this as we’re in the top of the second.”