And just like that, the Jason Kilar era at WarnerMedia is over. It was more a moment, really: When Kilar steps down as CEO of the company tomorrow, it will have been almost exactly two years since he was tapped to lead the entertainment giant conglomerate behind everything from HBO Max to Young Sheldon. He is leaving not by choice but because last May, AT&T announced it was selling WarnerMedia to cable giant Discovery — and incoming boss David Zaslav made it clear he wanted to run the show. With Discovery set to complete its acquisition any minute now, what had been ordained for months will become reality.
While Kilar’s tenure at the top was relatively brief, it was most certainly not uneventful. The former Hulu chief rammed through a ton of change during his 47 month in office, including a key move to simplify and modernize WarnerMedia’s streaming and TV exec structure. And his decision to put Warner Bros.’s 2021 theatrical titles on HBO Max the same day they opened in theaters, while controversial in some circles, played a role in creating a new normal of movies jumping from cineplexes to streaming weeks after their initial release. So while Kilar wasn’t at WarnerMedia long enough to implement many of the ambitious plans he no doubt had when he joined the company in May 2020, he is nonetheless leaving a company much different than the one he joined in May 2020. Buffering caught up with Kilar this week to talk a little bit about what the exec felt he accomplished — and a lot more about where he sees the streaming business headed over the next few years.
Let’s talk about the competition among streaming services. There’s a lot of talk about how many services consumers are willing to embrace, but I’m curious how much money do you think they’re going to be willing to spend on streaming going forward. The average U.S. home for years, before streaming, was shelling out anywhere from $80 to $100 for cable TV. As the cable bundle goes away, will consumers just shift all that money to streaming subscriptions? Or maybe even be willing to pay more?
It differs by geography. So for example, in the U.S., the relative wealth of Americans is obviously quite high versus say India, and so the answer is different. In the U.S., lots of people are doing the virtual live TV bundle, along with a couple of their favorite streaming services. That’s a pretty common experience that we see. Does that look that way 10 years from now, when more sports are available in streaming services? Maybe not. Anybody who says declaratively to you, “This is the way it’s going to be”? I’d be very circumspect about it because at the end of the day, it’s the customer that gets to decide. It’s not us.
What our strategy has been is to present live linear channels to the best of our capability and at the same time, do things like HBO Max and CNN+, and then let the consumer make that decision. So far, that’s been a very good strategy. We literally had the highest revenues in the 99-year history of the company last year in the face of a pandemic, in the face of theatrical closures, in the face of cord-cutting of five to seven percent a year. That would suggest, to your question, that people — in the US at least — are certainly comfortable paying for a pay TV bundle in addition to a couple of streaming services. I suspect that’ll change over time, but I just don’t know how or with what velocity.
And what will that translate into how many big platforms survive this start-up period in the shift from linear to streaming?
I’ve long held a belief that generally speaking, there’s going to be a relatively short list of streaming services that are must-have. My hunch is there’s probably going to be three must-have general entertainment streaming services. And on this, I’m referring to the storytelling-centric companies. So WarnerMedia is clearly one with HBO Max, and then I put Disney and Netflix in that camp as well. I’m setting aside Apple and Amazon, because they’re kind of different things — one supports a hardware strategy, the other supports a retail strategy. But my hunch is that if you get into a time capsule and get out in a decade, you’re going to see three storytelling-centric companies that are at scale — probably over 300, 400 million happy, paying subscribers. And I think that the others are going to be refactored, [either] through M&A transactions [or] a pivot to be production entities, like Sony Pictures Entertainment has been. I just think that we’re about to see, in the next 36 to 48 months, a fair bit of changes to the chess board.
So do I hear you basically predicting, as others have, some sort of merger between Comcast and Paramount Global, for example? Or that maybe what will soon be Warner Bros. Discovery is going to get even bigger?
Any of those are certainly possible. What you don’t know is who acquires who, and then who’s the acquirer and who’s the acquiree. But I do think you’re going to see changes. I think some of those companies could become production entities, like Sony Pictures Entertainment is. Sony used to be a streamer. They had a service called Crackle that did not succeed and they made the decision to pivot and become a production house, to make movies and television shows and sell them to the highest bidder. Is it possible that Paramount Global could do the same? We’ll see. You could also see some sort of inorganic combination of other players. But I don’t think the current chess board is sustainable long term. I think there’s going to be changes to the chess board.
During your time as CEO of WarnerMedia, did you ever consider the idea of WarnerMedia going after one of those big companies you just mentioned? Or did you think you were already big enough, even before the Discovery deal your bosses at AT&T engineered?
I’m very biased on this topic, but if you look at our results to date, we’re already one of the scaled companies, and this is pre-merger. When you look at the breadth and scope of WarnerMedia and all of the franchises and all the intellectual property and everything that is a part of this 99-year-old company, in the same way that Disney feels very good about their position and Netflix does as well, I feel very good about our position today. Discovery’s content portfolio will obviously add to HBO Max, but make no mistake, if you look at the lay of the land right now, there are three players that are leading. So it’s certainly not necessary to go and acquire other things. I feel very strongly that the WarnerMedia that you see today has enough to be able to be a scale player because we already are.
I want to get your take on another big picture issue for the industry. Over the next three to five years, where do you think the most heat will be: Premium subscription services, ad-supported paid streaming, or FAST, which as you know are the free ad-supported platforms such as Pluto and Tubi?
I think the largest economic engine of the industry is going to be paid subscription. Under paid subscription, there are two flavors: ad-free and ad-supported. At HBO Max in the U.S., we have ad-free for $14.99 and ad-supported for $9.99 in the US. I think that business model is going to provide the plurality of the next-generation revenue composition for companies like ours.
But I am very bullish on FAST channels as well. We have a healthy future in it. And I want to be very clear about that, because we’ve done a lot of work on it. I think the market for paid streaming can be a billion households across the globe, but then you still have another seven billion to go. And I think the FAST channels products are going to serve those folks. So in aggregate, how much revenue will that kind of comprise? I think it’ll be a little bit less than the paid streaming sector, but either way, I’m very bullish about both.
FAST and AVOD can create new windows for content, too, right? It lets content owners create their own syndication market by putting shows on other platforms nine months or a year after they’re on subscription services.
I completely agree. And the way you think about the world is the way I think about the world. With price comes advantages, and when you have a free service, obviously that’s going to have a certain type of content and with certain windows attached to it as well. I’m a real big believer in it. One of the restaurants that my family goes to a lot is a restaurant that plays Tom and Jerry on repeat on the wall. My son always wants to go and just watch the Tom and Jerry episodes back to back. That’s a FAST channel! So there’s real value in that. We could do 500 FAST channels given our television library and you’re absolutely right, that with windowing and appropriate product design, it can work very well in concert with HBO Max.
Should Netflix copy what you’ve done with HBO Max and offer an ad-supported option?
I adore this team and I adore this company and that doesn’t change in the future when I step away from here. And I’m also a shareholder of this company. So I’m not going to give strategic counsel to Netflix because of those things.
So one of the big things for which your tenure will be remembered is the decision to stream the entirety of the 2021 Warner Bros. feature slate on HBO Max the same day those titles were released to theaters. There were some legit concerns on the part of movie makers about how it was announced and compensation for loss of profit. But — and I admit this may make me sound like an apologist for you — I think the giant movie exhibition chains got let off the hook in this debate. Until the pandemic forced the issue, they were just stubbornly resistant to change, not unlike broadcast network affiliates. What’s your take on the backlash and where things stand now?
When you look at where we are right now, it’s very clear through a number of different metrics: It was the right decision. It was the right decision, because we were in the middle of the pandemic. Think about that right now — there was so much debate around the decision to help people enjoy movies in their homes in the middle of a pandemic where seven million people are dying, while at the same time making those same movies available in theaters with fully-funded marketing budgets. And we were the only studio doing that, by the way. We released 18 movies through a pandemic when all of our competitors either were selling their movies to streamers for streaming only, putting them in their back pocket, to hold until after the pandemic, or in some cases following us and coming over the wall following us.
In terms of your question about exhibitors, I don’t know. There’s no doubt that change is hard for a lot of folks, especially industries that haven’t had a lot of change over the last several decades. There are some industries that change every week. I wouldn’t say that exhibition is necessarily that. Now, there are exceptions. Alamo Drafthouse, for example, is a fantastic example of a new entry in that industry, that has brought breakthrough change, I would argue.
Do you think the exhibition space is ripe for more such disruption?
I don’t know if it’s disruption, but I think about the word “innovation” a lot. The folksy way I describe it is, “the relentless pursuit of better ways.” And when I look at exhibition and what’s really resonating for fans, movie fans, it’s been the larger-than-life screens, the IMAX screens. You see it right now when you read the box office performance of The Batman and I’m sure you’re going to see it when you see the results of Secrets of Dumbledore. It’s always about what percentage [of gross revenues] was IMAX screens? What percentage was big format screens? I think that’s a great example where consumers are telling you, “Hey, I’d like to have a larger format experience that I just can’t get at home.” So I do think that there are always going to be opportunities for any industry, including the exhibition industry, to relentlessly pursue better ways. My experience is that those companies that have that as a mantra and as a part of their fundamental DNA, they tend to outperform over time. And those folks that don’t embrace that mantra tend to underperform over long periods of time.
Speaking of innovation, HBO Max took a lot of heat from consumers early on because the interface was often buggy and not always user-friendly. But it’s made massive improvements over its first two years and I would argue it now offers one of the best experiences. Was that a priority for you, and do you think big legacy media companies make a mistake when they don’t pay enough attention to the product part of streaming?
I have very strong opinions on this. Let me give you a picture of what WarnerMedia looked like before I joined in early 2020. Technology reported into the finance organization, and HBO Max was three levels below me. The changes that I made within my first 100 days were to have technology report directly into me; to recruit a world-class chief technology officer who had expertise in direct-to-consumer services, including online advertising; and to elevate HBO Max to a direct report to myself. I mention that because my experience is that traditional media companies have underestimated and underinvested in the product, design and technology aspects of streaming. At WarnerMedia, we’ve fundamentally addressed that, and we tried to do it as quickly as humanly possible. But I think it’s fair to say that there’s a number of folks still in this industry that probably fail to appreciate just how important that is, because they don’t come from that world.
Before we go, I have to get in one question about how we measure audience size in the streaming era, or rather, how we don’t. Do you think the industry needs to be more transparent about how many people are actually watching content, especially if you’re going to be in the business of selling ads? There’s just no consistency in terms of what metrics are used or made public.
So my answer is a split one. I believe that in the advertising business, it is critically important to be transparent about what is happening for advertisers that are investing their money in advertising on a service. I don’t think you can be a credible advertising service if you do not have transparency. I firmly believe in that. On the other part of your question, I actually think that for scaled players, the industry will get to increasing transparency when it comes to audiences, such that talent and producers and other partners can have a better appreciation for how their series or movies have performed.
The reason why you’re not seeing it today is because the playing field is unlevel. What I mean by that is that if you are Netflix, and got started 10 years before everybody else, of course you’re going to have a lot more subscribers today. That means an average show for Netflix is going to have a certain audience compared to say Peacock, which is just starting their journey. Their biggest hits will be, in absolute numbers, less than say a middling show at Netflix. And so that’s a big reason why you don’t see full transparency right now, and why you see Netflix more and more transparent — because it plays to their advantage. Over the next 48 months, as you see WarnerMedia and Disney and Netflix get to similar size and scale, then it won’t be an unlevel playing field. It’ll be a hit on HBO Max is equivalent to a hit on Netflix is equivalent to a hit on Disney+.