Digitalization is transforming the entertainment industry and disrupting how traditional Hollywood studios, such as Warner Bros. Entertainment (WB), deliver content. Consumers want more choices in where and how they view content(1) and new entrants, such as Netflix, disrupt the existing value chain and allow consumers to bypass traditional distribution(2). Consumption is shifting from the movie theater to digital platforms. This is reflected in the U.S. box office, where growth is derived from higher prices rather than increased attendance (1). To survive in a digital world, WB needs to develop innovative ways of delivering content.
New Strategies: WB is adapting to this new marketplace through three key strategies. First, WB is focusing on creating, investing in and acquiring digital platforms. Second, WB is exploring premium video on demand (PVOD), a new distribution strategy that will transform the theater component of the supply chain. Lastly, WB is leveraging telecom providers, such as AT&T, in a mutually beneficial partnership to bundle products for consumers, further compressing the supply chain.
Digital Investments: WB is a unit of Time Warner, who also own HBO and Turner. Time Warner recently took a 10% stake in Hulu, one of Netflix’s key competitors. Hulu now has additional power to increase market share and WB has a piece of a large digital player(4). Furthermore, WB has made investments abroad, where digital viewing is less saturated. WB holds a minority stake in Hollywood VIP, a Netflix-like Chinese video service launched by Tencent, China’s largest internet company(11).
In-House Creation: In June 2016, WB created a new division to house digital platforms and partnerships, allowing the studio to speed up new distribution(3). This division is building WB’s digital footprint and expanding OTT (over-the-top) video services, content delivered digitally to consumers. WB’s goal is to reach audiences anywhere, across any platform, and the current portfolio includes DramaFever, Boomerang, Stage 13, and a DC-branded service(5).
Growth in OTT: Last year, WB acquired DramaFever, a subscription service focused on Korean dramas, to obtain the underlying technology to create more OTT services(6). This acquisition will allow WB to get closer to consumers with digitally-native content and original programming(7). WB is also creating new OTT services – Boomerang is an OTT partnership with sister company, Turner, to deliver 5,000 animated titles to U.S. subscribers.
Transforming Content: Digitalization not only disrupts how content is delivered, but it also transforms what types of content can be delivered and how studios can interact with or understand consumers. Consumers entering a theater expect long-form content – movies that last around two hours. However, digitalization allows consumers to view short-form content in new ways. As such, WB is launching Stage 13, a short-form content brand with shows on YouTube, Facebook, and its own website. This will allow WB to reach audiences seeking new forms of entertainment besides long-form movies on platforms they use most(9).
Changing Consumer Interactions: The traditional supply chain included theaters as an intermediary between WB and consumers, which meant that WB did not always interact directly with or collect data on consumers. Digitalization allows WB to control the consumer experience and better understand consumer trends, transforming it into a more data-driven company a la Netflix. For example, WB is launching a DC-branded (Batman, Wonder Woman) platform that will provide traditional OTT services, as well as an immersive experience with fan interaction(10).
Disrupting the Supply Chain: In the medium term, WB should explore opportunities to transform the supply chain by potentially offering PVOD, allowing consumers to download movies at home at a price of $30 to $50, weeks after release in theaters. This would help make up for declining DVD sales in the age of Netflix(12) but would drastically impact the traditional supply chain because some movie-goers would stay home, reducing traffic and revenue to theaters(11).
New Partnerships: Lastly, WB has an opportunity to bundle its services with telecom providers. An emerging trend, Sprint provides its customers free Hulu subscriptions, while AT&T gives away HBO and T-Mobile customers get Netflix(13). As AT&T finalizes its acquisition of Time Warner, there is a longer-term opportunity for WB to explore new ways to leverage AT&T’s large consumer base digitally. This is beneficial for both parties because bundling services increases consumer stickiness and reduces churn.
WB is aggressively pursuing a multi-faceted strategy internally and at the Time Warner-level to compete in a digital world. However, there are still opportunities for WB to expand its digital footprint and explore new distribution partnerships. As WB transforms, key questions remain:
- Should WB have a vested interest in sustaining the movie theater-going experience, or shift its focus completely to digital?
- Will consumers get subscriber fatigue – how many different OTT services can consumers really manage?
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(1)Lindsey Bahr, “Premium Video on Demand Is a Future Few Filmmakers Want,” U.S. News, April 1, 2017, https://www.usnews.com/news/best-states/nevada/articles/2017-04-01/premium-video-on-demand-is-a-future-few-filmmakers-want, accessed November 2017.
(2)Doug Creutz, “Updating Model; Acquisition Approaching,” Cowen and Company, August 3, 2017, accessed November 2017.
(3)Joe Flint, “Warner Bros. Creates Unit for Digital Platforms,” The Wall Street Journal, June 2, 2016, https://www.wsj.com/articles/warner-bros-creates-unit-for-digital-platforms-1464896641, accessed November 2017.
(4)Todd Spangler, “Time Warner Acquires 10% Stake in Hulu for $583 Million,” Variety, August 3, 2016, http://variety.com/2016/digital/news/time-warner-hulu-investment-1201829514/, accessed November 2017.
(5)Hanna Bolte, “Spotlight Is on Warner Bros. Digital Networks’ Stage 13, Launch Thursday, October 19,” Globe Newswire, October 18, 2017, https://globenewswire.com/news-release/2017/10/18/1149381/0/en/Spotlight-Is-on-Warner-Bros-Digital-Networks-Stage-13-Launch-Thursday-October-19.html, accessed November 2017.
(6)Todd Spangler, “Turner, Warner Bros. to Launch Boomerang Cartoon Streaming-Subscription Service for $5 Monthly,” Variety, March 7, 2017, http://variety.com/2017/digital/news/boomerang-cartoon-streaming-subscription-time-warner-turner-wb-1202003660/, accessed November 2017.
(7)Todd Spangler, “Warner Bros. Acquires DramaFever, Plans to Launch Other OTT Services,” Variety, February 23, 2016, http://variety.com/2016/digital/news/warner-bros-dramafever-1201713038/, accessed November 2017.
(8)Natalie Jarvey, “Turner, Warner Bros. to Launch Animation Streaming Service Boomerang,” The Hollywood Reporter, March 7, 2017, http://www.hollywoodreporter.com/news/turner-warner-bros-launch-animation-streaming-service-boomerang-984098, accessed November 2017.
(9)Todd Spangler, “Stage 13, Warner Bros. Digital Networks’ Edgy New Content Brand, Sets Fall Launch,” Variety, August 4, 2017, http://variety.com/2017/digital/news/stage-13-launch-warner-bros-digital-networks-1202516192/, accessed November 2017.
(10)Nellie Andreeva, “DC Digital Service To Launch With ‘Titans’ Series From Greg Berlanti & Akiva Goldsman And ‘Young Justice: Outsiders’,” Deadline, April 25, 2017, http://deadline.com/2017/04/dc-digital-service-titans-young-justice-outsiders-1202076831/, accessed November 2017.
(11)Anthony D’Alessandro, “Lionsgate Bullish That PVOD Will Happen In The Future Despite AMC Saying It’s Unlikely For 2017,” Deadline, August 8, 2017, http://deadline.com/2017/08/lionsgate-pvod-theatrical-exhibition-distributors-studios-1202145195/, accessed November 2017.
(12)Anousha Sakoui, “Hollywood, Apple Said to Mull Rental Plan, Defying Theaters,” Bloomberg, August 18, 2017, https://www.bloomberg.com/news/articles/2017-08-18/hollywood-apple-are-said-to-mull-rental-plan-defying-theaters, accessed November 2017.
(13)Aaron Pressman, “Why Mobile Carriers Want to Cover Your Netflix, HBO, or Hulu Bill So Badly,” Fortune, November 15, 2017, http://fortune.com/2017/11/15/free-hulu-sprint-hbo-netflix/, accessed November 2017.