Can Warner Bros. compete with Netflix after the merger with Discovery+?

Gov. Gavin Newsom wants production companies to stop filming in states that don’t support abortion rights and the LGBTQ community. He is offering incentives to lure them to California. That includes $1.65 billion in tax credits. Additionally, Warner Bros. Discovery has just announced that HBO Max and Discovery+ will be merging into a single streaming service.

According to Puck News founder Matt Belloni, the new streaming server will debut next summer and qualifies as a super service.

“The point is scale and global competitiveness with Netflix. Netflix has 220 million subscribers worldwide and it’s simple. It is a service and has a one-stop shop for all customers. They believe that by combining these assets, they can have a compelling competitor to Netflix, and they can go around the world and achieve scale at a cost,” Belloni tells KCRW.

Since HBO Max’s debut, Belloni says the streaming service has successfully expanded its portfolio by investing in original scripted programming. He says the company hopes to build on that success in its merger with Discovery+.

The strategic change is motivated by the drop in the valuation of streaming services like Netflix, explains Belloni. It has prompted Warner Bros. Discovery to take unexpected steps, including the merger and cancellation of the nearly completed “Batgirl” movie, which was scheduled to be released on demand.

“If you own Warner Bros. Discovery and you have HBO Max, they’re saying, ‘You know what? Maybe there’s no point in making $90 million movies just for the streaming service. Let’s make $200 million movies, put them in theaters, and make $1 billion in theaters first.’”

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He adds: “The movie was bad. And it wasn’t just bad in the sense that most comic book movies are kind of bad. It was small. There weren’t a lot of effects or chase scenes. It was designed to be a TV movie. … It is in this ‘no man’s land’ where it is too cheap for theaters, but too expensive for broadcast. So they just decided to file it and get the tax credit.”

Belloni says the company is aggressively course correcting and wants to approach streaming responsibly.

“They are going to respect the theaters. They’re going to put movies in theaters for 45 days… then they’re going to bring them to broadcast and TV. And they are going to try to have a diversified portfolio, which has always been the benefit of these fully diversified media companies,” he explains. “Now they expect at Warner Bros. that the more diversified and traditional model will be attractive.”

California Tax Credit Proposal

Belloni says that despite an attractive bottom line, California’s offer of more than $1 billion in film and TV tax credits is unlikely to attract new productions here. That’s because other states like Georgia and New Mexico offer better deals.

“There are people in the studios whose job it is to search the world for the best and most tax-friendly environment to shoot these projects. And I’m sure they’d love to go to California. … But they are going to go to the place where the money is most favorable. And California remains, despite this offer, not that place.”

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