Motley Fool Hidden Gems Investing - The Evolution of Max

Episode Date: December 5, 2022

Executives at Warner Bros Discovery are planning to unveil a new streaming service combining the assets of HBO Max and Discovery+. (0:21) Jason Moser discusses: - How CEO David Zaslav's focus on profitability could pay off - WBD's underrated library of content - The rise of FAST (Free Ad-Supported TV) (12:30) Andy Cross talks with Airbnb co-founder Nat Blecharczyk about the latest improvements for the home-sharing platform. Stocks mentioned: WBD, NFLX, DIS, CMCSA, TTD, ABNB Holiday Music: Christmas Is Starting Now by Big Bad Voodoo Daddy Host: Chris Hill Guests: Jason Moser, Andy Cross, Nate Blecharczyk Producer: Ricky Mulvey Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. We've got a little shakeup in the video streaming wars. Motley Fool Money starts now. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst, Jason Moser. Happy Monday. Jason Moser. Happy Monday indeed. Executives at Warner Brothers Discovery are planning to merge their Discovery Plus streaming service with HBO Max. They are reportedly close to a new name for this combined service, and the name that is being reported is simply Max, which is, I guess, better than just Plus. The interface is reportedly going to have individual tiles for HBO, Discovery,

Warner Brothers Content, and DC Comics all there in the main hub for the service. And this story, Jason, reminds me that I think we all underestimate slightly, or at least don't pay as much attention as maybe we should to Warner Brothers Discovery when we're talking about the streaming services. Oh, I think that's a good point. And I think that, I think, number one, I really do appreciate the fact that they're not tilting towards something like a plus. It feels like that has just been used to death. And so, something like a Max, I think, makes a lot of sense. It takes the focus away from HBO, which is its own property, right?

It's its own brand. And it's a pretty impressive landscape. When you look at today's HBO Max app, like, if I open that app up on my phone, and I'm looking at all of these properties here, they have HBO, DC, Max Originals, TCM, Adult Swim, Studio Ghibli, Cartoon Network, or CN, Sesame Workshop, Looney Tunes, Cartoonito. I mean, they've got a lot of stuff here, right? And so, now we're going to see them bringing the Discovery properties in there as well. And it all goes to, I think, it speaks to, this is just a very valuable property, right? And obviously, it's not worked out as an investment

on its own so far. I think that partly has to do with the state of the business very much in transition and re-establishing itself and coming up with a new direction. Also, it's a very competitive space in streaming. Streaming is getting so much attention in the financial media these days because of Netflix, because of Disney and Disney+. It's not the most profitable market opportunity out there right now. It's still a market opportunity that's finding its way and evolving. But I like the way that CEO David Zasloff is looking at this business. just a tremendous amount of intellectual property that is within that one company. You have so many different properties, so many different brands underneath that umbrella. I think this

has a chance. In a space where I think we're going to continue to see more and more consolidation, I think this is going to be one of the consolidate whores. This is going to be one where probably a few more brands end up residing under that umbrella as time goes on. Ultimately, I feel like it'll work out well for them, but they've got their work cut out for them as well. It is a business, like I said, still trying to find its way, ultimately focusing less on just growing that subscriber base and more on actual profitability. That is really the North Star for this business going forward. It's not just about subscribers at any cost. I think we're seeing that mindset play out beyond just Warner Brothers. I think you're seeing that

same language at Disney and Netflix now as they try to capitalize on these new opportunities. But isn't their total subscriber base somewhere in the neighborhood of 100 million? It is. It's getting up there. They just recently announced their most recent quarterly call towards the beginning of November, they had added 3 million direct-to-consumer subscribers. That is somewhere in the neighborhood of 100 million when you put all of the properties together. That is a big subscriber base. When you think about something like your Netflix's and Disney's that are 225, 235 million, that's one thing. But then you get this next level where you see the HBO Max brand come into play here because you compare that to something like a Peacock,

NBC's Peacock, at the end of their most recent quarter, they had 15 million paying subscribers, along with another 14 million bundled and free users. Let's just call it 30 million subscribers there. I think what is a pretty well-established brand in that Peacock brand and the NBC content, to see HBO Max with that size subscriber base, that's what you want. You want the subscribers. And then ultimately, what you've got to do is, you've got to figure out how to keep them. And so, we're seeing, obviously, companies like Netflix introducing the ad-supported tier. We're going to see here in the very near future also, Warner Brothers will be introducing their own fast offering or free ad-supported TV, you could compare that to something like

a freebie on Amazon or Tubi or whatever. But all together, yeah. I mean, the subscriber base is what you ultimately need to get to that profitability and then just take advantage of your scale. And I think those are two big advantages that Warner Brothers has in this case is they've got the subscriber base and they've got the properties and the content, so they really should be able to take advantage of this. It'll just take some time. And I think really ultimately getting everybody on the same page. And something that they mentioned in the most recent call too. Beyond just the strategic priorities of content and maximizing the monetization of that content, they're ultimately trying to operate as one

company. I think right now what they're witnessing is a very siloed situation with all of these different brands. This business has come together here over the past several years. That siloing is very inefficient. I think what they're trying to really do is eliminate a lot of the redundancies, trying to right-size the business and ultimately operate as they say as one company that I think will help them in getting to that profitability goal sooner rather than later. Zaslav certainly is not letting any moss grow under his feet. I mean, you think about, he comes onto the job, he very quickly kills the CNN Plus app and says, that thing didn't start under me, I'm not going to spend that money. To your point about

profitability, I am reminded of the lead-up to the launch of Disney+, which launched in late 2019, a good, I think, three years after the original target date. I think the original target date was 2016, maybe it was 2017, but it got delayed a couple of times. And we said, leading up to that, boy, they better get this right. They really better nail this interface because they've been delaying this over and over again. And I think, not that Warner Brothers Discovery has had the same number of delays, but I think, as you said,

they got their work cut off for them. It's a real great opportunity because if they nail the interface right out of the gate, if they can really delight the existing subscribers they have with a new interface of a new merge combined service, then I think it makes it a lot easier for them to go out and find new subscribers, hopefully in a cost-conscious way.

Oh, yeah. I do agree. I think that what they have today, the interface is fairly intuitive, easy to use. You can get to where you want to go, I think, pretty quickly. Again, I like the idea that they're steering the branding away from involving HBO, because I think and one thing that they've noticed, you know, HBO for so long has just been, that has, sort of, been the pinnacle, right, of original content. They just really have knocked it out of the park for decades. And when you have this HBO Max property that then has all of this content underneath it that seemingly isn't related to HBO whatsoever, it becomes very confusing, right? You start to wonder, you know, is this really what I'm looking for? And so, I think being able to

give it its own identity and then touting the originality of each brand underneath that umbrella makes a lot of sense. Zaslav said on the call here recently too, in regard to subscribers, he called it this grand experiment in chasing subscribers at any cost. He's essentially referring to, we're not going to worry about profitability, we're just going to do whatever we can to get subscribers. Typically, the first thing you do is you just produce mountains and mountains of content, and you pay just exorbitant sums of money for that content. I mean, we've seen, obviously, companies like Netflix and Disney that are throwing tens of billions of dollars every year at this content. That doesn't look like it's

going to abate anytime soon. And he feels like, listen, that was the grand experiment, but that's not the way this needs to be done, this is over. It's more about deliberate content, identifying with your brands, the audience's desire for whatever those brands may be in focusing on that profitability, not just chasing subscribers at any cost. We're seeing with Disney and Netflix, I think they recognize that. That's why they're going to those ad-supported models because they recognize there's this big opportunity out there to capture more viewers and actually do it in a a profitable fashion. I do think that ultimately, it's going to take some time, but I do think that Zaslav has his mind in the right place regarding this. It's going to be interesting

to see, I think, how this fast offering that's supposed to launch here by next year, that free ad-supported TV, I think that could be another meaningful driver. Because as we've seen over the past several quarters with companies like The Trade Desk. They talk about that connected TV and that ad-supported streaming market is really, really taking hold, gaining a lot of traction. One of the advantages with the companies like Warner Brothers Discovery is they have a ton of IP and they can really exploit that. A lot of that IP is timeless. look at things like HGTV and Food Network, for example. You produce a season of those shows, and they're good 10 years later. Something very similar to what Disney benefits from,

and I think Netflix to an extent as well, and certainly HBO has benefited from that through the years also. I like the idea of really focusing down on profitability. Understand if you have the right content, the viewers will come and you use the word delighting. If you can keep on bringing good content, then they're probably going to want to stay. It's going to give you a little pricing power. Then the other point they made too is that they haven't raised prices over the course of the last three years, I think he said. As they add more to this offering, it's going to give them a little wiggle room to raise those prices incrementally over time, which I think will make a big difference. Jason Moser, thanks for being here.

Thank you. Despite all the rolling lockdowns in China, travel is bouncing back in the region. Motley Fool Chief Investment Officer, Andy Cross, caught up with Airbnb co-founder, Nate Blacharczyk, to talk about the latest improvements for the home sharing platform and how Airbnb's growth story can continue. And Nate, you're actually a host yourself on Airbnb, I think. I have that right? You host yourself on Airbnb. Talk a little bit about how do you all decide to think about your feature set?

Did you do a lot of customer research? Are you out there talking to hosts? Are you using internal Airbnb employees like yourself to guide you on what features to add or not add to the site? Any insights on how the winter release kind of came about and why you focus so much on things for, like, the hosts? Yeah, well, really all of the above. I mean, specifically the winter release, you know, it started with, you know, what are the macro trends that are happening? And if you look back at all our releases over the last two years, we do one every six months. It very much starts with, you know, what are the trends that are happening out there right now? That's because we've kind of gone through a very tumultuous period where a lot of things were changing very quickly.

And so as a company, we wanted to make sure we were really responsive to what people needed in the moment. You know, what people are going to need two years from now, very different from maybe what they needed during the pandemic. And so I think our development process has been very attuned to what are the trends. So the trend right now is there's a lot of economic uncertainty. There's inflation. People are going to value extra income. So that's the trend. So we think hosting is the answer to that.

Now, we want to answer the question, how do we get all those people who have been sitting on the sidelines? They're not yet hosts. They're not yet maybe guests, but in this case, hosts. And we went out and we did a lot of consumer research to study what are the concerns that people have. They're worried about, is my place good enough? They're worried about, what's my first guest going to be like? What protections are in place?

So that then informed our feature set. As for my own personal hosting, I've been hosting for a long time now. So, you know, I'm no longer the prospective host, right? I'm the super host. But that's super valuable as we think about making the product better for our more experienced hosts. You know, I use the product every day. And I notice a lot of little things that help me create accountability with the team. You know, especially, again, going back to the fact that, you know, I'm probably, Joe, Brian, and I, you know, we've been the only ones who've been here for, you know, 14 plus years.

Yeah, true. So this consistency of thought that we bring in this kind of obsession with the product and familiarity with the frontline product is very important for being a leader at the company. I know one of your experiences also is globally, and I think you ran the China business for a little bit. Maybe you are still tied to it. Talk a little bit about globally. are you seeing that things like the window release or customer dynamics, hosting dynamics, what are some of the challenges that you might be seeing outside the United States that might be helped with something like the window release? Are they different dynamics or is it the hosting

concerns are pretty universal across the world? Yeah, well, you mentioned China. China is, you know, a pretty unique place with their COVID strategy. And our focus in China these days is really just on outbound travel. Um, we no longer are doing hosting inside of China. Um, so China's probably an outlier, uh, in terms of like, uh, where they are travel wise. Um, but the rest of the world, uh, I think is increasingly kind of in the same place. I think, you know, different countries were at different points in their COVID cycle. Um, you know, all countries aside probably from China have, at this point, relaxed restrictions, you know, Asia being the most recent kind of region to really open up over the last several months. And, you know, with that came

a rebound in travel. So travel, I think, has been very strong once economies have opened up. There's a lot of pent-up demand. There's also this remote work trend that is very much present all around the world, which effectively allows people to travel longer and more often. And now there's inflation and there is economic uncertainty. So I think, you know, this is, these trends are really global ones at this point. And, you know, we've seen our business thriving as a result all around the world. Looking beyond the winter release, what do you see as just the biggest opportunities, the really untapped opportunities for Airbnb that excites you? Yeah, well, I think there's still so much opportunity just within our core business again the number that like keeps me

super super excited is like this whole business has been basically built um with just four million hosts yeah on the platform right that's that's a small number in the scheme of the global population yeah uh and to think that 60 million visitors have come to that hosting page at least considering hosting so i think there's a future where there's you know millions and millions um multiples more uh, hosts. Uh, and I think that's, um, that's a huge opportunity because that's just our core business. Is that, is that mostly an accommodations you think need, or does it start to expand into other areas? I know you've talked about experiences and things. Yeah. Accommodations is the majority of our revenue by far, uh, currently. So I think that alone is, is exciting. Uh, that being said,

when I think about hosting and the potential for our hosts, it goes beyond, uh, just providing accommodation uh we've obviously experienced uh experimented a little bit with this with experiences right it's a new way in which people can offer um their time and expertise as effectively a small business uh our um with our winter release the fact that we're pairing you with what we call an ambassador but it's effectively a super host well those ambassadors are being compensated uh for for their time um when when a new prospective host becomes successful gets their first booking that ambassador is actually making income from airbnb so yet another way in which a host can in this case share their expertise and their perspective and monetize it

and i think there's so many other ways uh in the context of travel uh that our hosts can offer their hospitality, their expertise, and monetize it. So I'm personally pretty excited to explore those other possibilities. I mean, those possibilities are very nascent at this point. They're not going to drive meaningful revenue in the short term. But when you think about the next 10 years and where this goes, I think it's hugely, hugely exciting. I'm also just very excited about living, working, and traveling all kind of converging, right? The fact that people do have this new mobility and are untethered. You know, I think Airbnb is experiencing this trend currently through the trend of long-term stays, stays of 28 days or longer being booked on Airbnb.

It's 20% of our nights booked are 28 days or longer. But I think it really starts to open up the possibility of, you know, what if Airbnb is a site you go to not just for traveling, but for living your life. Whether it's your accommodation for months at a time or longer, or just new ways of experiencing your hometown, connecting with other people in your town. We see this with experiences in some cities. The majority of the people booking experiences are locals, just interested in meeting other locals. So I think the potential for Airbnb does expand beyond travel into some of these other big spaces like real estate and such. As always, people on the program may have interests in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow. And under a plow Tonight among top of the world We're gonna bring it around somehow Christmas has started now Oh yeah

Christmas has started now That's right Christmas has started now Oh yeah You better hang those stockings on the wall This is no time for procrastination We gotta trim that tree And deck the hall

That's gonna be a celebration.