In renaming ‘HBO Max,’ Warner Bros. Discovery hedges its bets in streaming

Humble as he may be, Warner Bros. Discovery CEO David Zaslav proved this week he’s definitely a name dropper.

Warner Bros. Discovery unveiled its new streaming service Wednesday, featuring a combination of programming from HBO Max and Discovery+. It will launch May 23 in the U.S., later this year in Latin America, and in the rest of the world in 2024. And it’ll be named “Max” — sans “HBO.”

At surface level, Warner Bros. Discovery’s decision to do away with the name HBO Max is a logical marketing choice. Look deeper, and it starts to resemble a microcosm of an existential tension that lies at the heart of the company — and the media industry more broadly.

The company is trying to compete with Netflix and Disney to be a winner in streaming, while at the same time pushing a message of financial discipline that deprioritizes streaming subscriber additions. It’s a question of quality versus quantity, and Warner Bros. Discovery is trying to play both sides.

“Max is where consumers can finally say, ‘Here’s a service that not only has something for everybody in my household, but something great for everybody in my household,” said JB Perrette, the company’s head of streaming, during a presentation introducing Max on Wednesday in Burbank, California.

Perrette explained Wednesday why Warner Bros. Discovery removed the HBO part of the name from the new service. HBO is synonymous with adult entertainment, and Max will lean into offering programming for kids and families, he said.

“We all love HBO,” said Perrette. “It’s a brand that’s been built over five decades to be the edgy, ground-breaking trend-setter for entertainment for adults. But it’s not exactly where parents would most easily drop off their kids. Not surprisingly, the category hasn’t met its true potential on HBO Max.”

Warner Bros. Discovery executives felt the name HBO actually limited the audience for the streaming service because it scared away potential audiences. They also felt the HBO brand could be diluted by the flood of Discovery’s reality TV programming set to join the platform, such as “Dr. Pimple Popper,” “90 Day Fiance” and various HGTV shows that more readily serve as background TV than fare for office water-cooler conversation.

“HBO is not TV. HBO is HBO. It needs to stay that way,” Perrette said at the event. “We will not push it to the breaking point by forcing it to take on the full breadth of this new content proposition had we kept the name in the service brand. By doing so, we’ll better elevate and showcase our unparalleled array of other content and brands that will be key to broadening the appeal to this enhanced product.”

The company’s reasoning is rational. HBO appeals to a certain audience, but also doesn’t appeal to a certain audience. HBO fans won’t unsubscribe from the service in response to the name Max, but some people who were scared off by HBO may now sign up once the adult brand has been obscured by the deluge of distinctly un-HBO content coming to the service.

When HBO Max initially launched, AT&T and WarnerMedia executives emphasized to subscribers that this new app was, first and foremost, the home of HBO. Now, about 80 million subscribers later, that point is less important. Those who want HBO already know where to find it, and HBO Max will simply morph into Max on most platforms.

Streaming is entering its “teenage” years, Perrette said, and Max as a name makes more sense to keep adding subscribers globally in a lower-growth world.

This would be the end of the story if Warner Bros. Discovery’s stated goal was to maximize (no pun intended) the number of subscribers who sign up for Max.

That was every media company’s goal when Zaslav agreed to merge Discovery with WarnerMedia in 2021. But according to Zaslav, that’s no longer the priority.

“I’d rather have 100 million subscribers or 150 million subscribers and have it be really profitable than try and stretch for some big number, and in the end, lose money,” Zaslav told CNBC‘s Julia Boorstin after the presentation Wednesday. “We take a look at what people watch on Max and we can see exactly what they like and exactly what they don’t. And some of the stuff they’re not watching, we can put it on a free AVOD [advertising-supported video on demand] platform, and some of the stuff that they’re not watching, we can keep it nonexclusively on Max, but we could also sell it to others.”

“We are relentlessly focused on creating great content and monetizing in every way possible,” he said.

With its new streaming strategy — and Max at the center — Warner Bros. Discovery is hedging its bets.

The company is keeping Discovery+ around for customers who are happy to pay $5 or $7 for just Discovery’s programming. Perrette said the company doesn’t “want to leave any of its profitable subscribers behind.”

Zaslav also alluded to Warner Bros. Discovery’s free ad-supported service, which the company has said is coming later this year.

Warner Bros. Discovery could have kept HBO Max around, too. For those customers who wanted both Discovery+ and HBO Max, it could have offered a bundle for a discounted price. That’s been Disney’s strategy, which offers bundled ways to mix and match Hulu, ESPN+ and Disney+.

Instead, the company loaded up one service with everything it has, which may also eventually include some news from CNN and sports such as NBA or NHL games. Zaslav said Wednesday he’d have more details on that “in the coming months.” Don’t forget, Zaslav killed off CNN+ as a standalone streaming option last year just about a month into its existence.

Warner Bros. Discovery is building Max as a one-size-fits-all option so that it has the scale to stick around in a post-cable world that’s coming increasingly quickly.

But Zaslav is also telling investors he’s fine with limiting Max’s growth. It’s more important for him to make money than to compete with Disney and Netflix to become the world’s largest streamer.

It’s a delicate balance: Disney, Paramount Global, Comcast‘s NBCUniversal and even Netflix are all battling the same forces. Investors turned on the narrative of pursuing streaming growth at all costs last year, cutting the valuations of many media and entertainment companies in half.

What’s happening now is, at its core, a hedge. The media industry knows streaming is the future but growth has slowed. Zaslav has championed the value of the traditional pay-TV bundle while criticizing the previous WarnerMedia regime’s profligate spending on streaming. He’s trying to give investors a new reason to get excited about Warner Bros. Discovery. That message, Zaslav hopes, is free cash flow generation.

“Ultimately, I’m a free cash flow guy,” Zaslav said Wednesday. “We want great talent, but ultimately, if we’re not making money on subs, if we don’t have any ARPU [average revenue per user], we’re not helping ourselves and we’re not helping shareholders.”

There are some indications he could be on to something. Warner Bros. Discovery shares are up nearly 50% this year after falling about 60% last year.

But when you take a two-part name — HBO and Max — and keep just the Max, the implication is “big” over “quality.”

That was AT&T’s message. It hasn’t been Zaslav’s message until now.

WATCH: CNBC’s full interview with Warner Bros. Discovery CEO David Zaslav

Disclosure: CNBC’s parent company Comcast owns NBCUniversal and co-owns Hulu.