CNN+ shutting down: ‘We’re just puzzled what AT&T was thinking to begin with,’ analyst says

Jessica Reif Ehrlich, a senior media and entertainment analyst at Bank of America, weighs in on CNN+ shutting down and why it never made sense to her to begin with.

Video transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. The streaming landscape shifting dramatically for two major platforms just this week. Today's Warner Brothers Discovery decision to shut down CNN+ adds to the subscriber woes that Netflix reported for its most recent quarter. So joining us now to discuss the state of streaming is Jessica Reif Ehrlich, who is the Senior Media Entertainment Analyst over at Bank of America.

Jessica, great to have you here with us today to break this down. So how does the cancelation--

JESSICA REIF EHRLICH: Thanks so much.

BRAD SMITH: Absolutely. How does the cancelation of CNN+ alter the valuation and even, perhaps, the rating for WBD, Warner Brothers Discovery?

JESSICA REIF EHRLICH: Well, it actually does not. We really love the WBD, Warner Brothers Discovery story, and have thought that CNN+ would be DOA as soon as Discovery took over. The mystery is why AT&T rushed the launch, why they spent so much money.

They spent probably three times more than Fox Nation spent in the whole time it's been on with significantly fewer subscribers. So in our view, Discovery or the new WBD management, made the right decision. And we're just puzzled regarding what AT&T was thinking to begin with.

DAVE BRIGGS: Jessica, what's next for Warner Brothers? Is it one massive bundle that includes all those properties and, perhaps at some point, folds back in CNN?

JESSICA REIF EHRLICH: Look, they just closed the combination two weeks ago. And so when they report-- when Discovery reports Tuesday, they will not have operated Warner Brothers at all. But we think this combination will be really a fantastic combination. We see it as a growth and deleveraging story.

They haven't yet given their go to market strategy for streaming, but our expectation is that they will have a very robust entertainment offering. HBO, some of the Warner product, the Warner films, and news, and sports. So unlike most of the services that are available, This will have, again, a broad array of content, of entertainment, but news and sports.

And they will also offer subscription as well as AVOD, or lower subscription price with advertising support. Discovery already offers that, and their RPU, the revenue they generate per month, is higher on their advertising product, or what they call ad lite, than it is on their subscription-only. So they're in a great starting position.

BRAD SMITH: OK, so a good starting position. How much of the resources, whether human or capital, do you expect them to begin reallocating? And how soon to really hit in stride on some of those timelines that we've seen them already rush to get out the door, but even now as they're repositioning to eventually be able to offer another compelling streaming platform in the future for some of the different viewers to take advantage of?

JESSICA REIF EHRLICH: Well, the heavy lifting for Warner Brothers Discovery is just starting. They just took over. And we do expect them to streamline operations. But from a DTC perspective, they have to have an offering for the US, and they've really barely gone to the rest of the world.

So there's still a very long-- there's a huge opportunity for them globally. And they have to-- they haven't done anything yet as a combined service. So they've got, in our view, a long runway for growth. And they have a lot of content that potentially will go in it. If you just look at what HBO Max has done so far, the engagement seems to be really, really high. And their sub growth, they beat their guidance last year-- like, they raised guidance two times and beat both times.

So they seem to be on a very good path. Of course, you know, everything's tempered or colored by Netflix, but we see this as a very, very different offering.

DAVE BRIGGS: And HBO Max adding three million subs, but Netflix really the streaming story of the week-- their first sub loss in more than a decade. And you have Bill Ackman dumping his stock-- that's $400 million in losses. Does that tell you things are going to get worse before they get better in Netflix? And is ad-supported content the solution there?

JESSICA REIF EHRLICH: Netflix is a different animal than many of the other companies, than many of the other streaming services. What the studios have in general versus somebody like Netflix or Apple, they all have deep libraries. So they have content that consumers know and are very familiar with. They also have multiple platforms to promote that content and for viewers to see that content.

Consumers are very familiar with Disney-- with Marvel's universe and "Star Wars" universe. So these are extensions of what they have. And it's not new. On the advertising side, they have very deep experience and they're already advertising on many platforms. So it's an extension of what they already do.

The demand is really high for limited advertising, three to five minutes of advertising in a targeted environment. So from that perspective, Netflix is the incumbent and has a lot to lose. And whether it's HBO Max or Disney+, these are the newer players who have a lot to gain.

BRAD SMITH: Netflix, that has been able to benefit from the growth phase of cord-cutting and the hard, swift move to streaming that we've seen, where would you say that we are in this streaming landscape right now in terms of that growth phase clearly being a thing of the past, and now for some of the shuffling where people are deciding to pick and choose either their price point and, based on that price point, which platform they're going to matriculate towards-- what would you describe of the state that the industry is in right now in either that growth or that churn phase?

JESSICA REIF EHRLICH: I mean, clearly, streaming is maturing. Netflix has been around for quite a while. Apple and Amazon have come in as well. So there's just a wealth of content. I mean, there's so much content, it's actually confusing, I think, for consumers, and very easy, unlike pay-tv, super easy to turn on and off.

So it's imperative to have very strong content. So just look at Disney+. They've been saying for two years, it will take until the second half of fiscal '22, which is actually the June quarter right now, for them to reach their content cadence stride-- for them to get to 100 originals a year, meaning they basically have two new either TV shows or movies every week. And that's what keeps viewers tuned into a service, or that's what cuts churn.

So it's very easy for them-- unlike, let's say, Netflix, again, or Apple-- I'm not trying to pick on Netflix-- every show is a new show and has to be marketed. So it's just-- they're very, very different in that regard. But I agree, streaming is much more mature.

It may be harder to keep consumers. Netflix is the highest priced or one of the higher priced services. And so as such, there's still, in our view, a pretty big growth curve for the others, especially on the ad-supported side.

DAVE BRIGGS: Indeed. Bank of America Analyst Jessica Reif Ehrlich, appreciate your analysis today. Thank you.