David Zaslav’s most critical mission is leading Warner Bros. Discovery through the streaming wars. But he also sees a rich opportunity for the company to capture a bigger chunk of territory in games.
The WB Discovery chief, who can’t go one earnings call without boasting about the power of the company’s rich trove of IP, used his Q3 address as a chance to announce plans to level up the video game division, which he says has “consistently enjoyed among the highest ROIs of any of our businesses.”
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This is where Zaslav’s love of franchises meets his plans for domination of the nearly $200 billion gaming industry. While “smaller than some of the leading pure-play gaming companies” — namely Electronic Arts, Nintendo, Ubisoft and Take-Two Interactive, as well as publishing competitors Sony’s PlayStation and Microsoft Gaming — Warner Bros. Games has managed “comparable” operating margins and is “punching above [their] weight” thanks to four IPs the company values at $1 billion apiece in the gaming world: Harry Potter, “Game of Thrones,” DC and “Mortal Kombat.”
“A very consistent message coming from the executive layer of Warner Bros. Discovery is the importance of franchises,” David Haddad, president of Warner Bros. Interactive, tells Variety. “There’s a unique and important role games have in keeping our franchises relevant, resonant and exciting, because there’s plenty of fans and plenty of people consuming content where games are their starting point.”
The two franchises that WB Discovery profited from the most in 2023 are “Mortal Kombat,” with the release of “Mortal Kombat 1,” which has sold 3 million copies since its September release; and Harry Potter, with last February’s launch of “Hogwarts Legacy,” which has now crossed 24 million copies sold and was the bestselling game of 2023 worldwide, per Warner Bros.
Those impressive sales figures caught the eye of Zaslav and CFO Gunnar Wiedenfels, who are focused on reducing Warner Bros. Discovery’s massive post-merger debt, enough to signal to the industry that the gaming division is the company’s new darling in its path to profitability.
“I’ve double- and triple-checked some of the metrics here because it’s such a great investment opportunity,” Wiedenfels said during the third-quarter call, adding he’s “stunned that we haven’t been investing more into this opportunity. We’re going to start tackling that.”
Warner Bros. Discovery CEO of global streaming and gaming JB Perrette tells Variety the key to topping those numbers is figuring out ways to make prized IP “more than just one great hit every three or four years.”
“We want it to be 'always on.' And the good news is the gaming space is lending itself to that,” Perrette says.
The exec is referring to the success big franchises have seen recently in offering not just splashy console and PC video games but also live services, mobile and free-to-play titles all within the same IP universe. Perrette says that combination is what he’s looking to “build out” for each of Warner Bros.’ most-valued franchises but warns gaming titles are on a “long cycle” and this plan can’t be delivered on in 2024.
With the focus shifting from console- and PC-based games with three- to four-year release schedules, a good example of what to expect more of from Warner Bros. is mobile games like “Game of Thrones: Conquest,” which checks that “always on” box — and keeps the TV franchise fresh in people’s minds between TV seasons. Perrette says the success of that game means “we’re constantly looking to see what else we can do” in the “Game of Thrones” and now “House of the Dragon” world, which is “one of our biggest and most popular audience franchises.”
When it comes to expanding the DC-focused gaming offering, Perrette and Haddad will be looking to new DC Studio chiefs James Gunn and Peter Safran, who have announced plans to incorporate video games into their revamped canon moving forward.
“Frankly, there hasn’t been as close a relationship between the studio and the games business as there should have been. And James is actually a gamer, so having someone who’s passionate about it is super helpful,” Perrette says, adding that Warner Bros. Games is “actively working with [Gunn and Safran] on the core franchises within the DC Universe.”
However, the plan isn’t to be “religious” about what they’re creating across divisions. “While they’re working on a Superman movie title, we’re not going to launch a Superman game purely because we feel obligated,” Perrette says. “We have to do something that makes sense for the gaming strategy and for fans and for the consumer.”
In their 2024 predictions report, Deloitte analysts drew a strong correlation between the success of films and TV shows and the offerings of video games based on the same IP, noting that several of the top-50-grossing films for 2023 have corresponding hit games. The analysts estimate that the share of theatrical box office revenues from video game IP will double by 2025, and that most of the top streamers will be home to shows based on games at that point, following the massive success of HBO’s “The Last of Us,” an adaptation of the PlayStation game of the same name.
Deloitte analyst Kevin Westcott notes that while those estimates, based on current trends, are one of the main reasons there’s so much interest in doubling down on gaming, there’s another piece that the industry is noticing. And, he says, “it’s about time.”
“If you look at those companies that have large streaming platforms, they’re dealing with three-plus-percent-per-month churn on their subscribers,” Westcott says. “Live games — the ones the gaming industry is now talking about — have a very, very small churn rate as compared to streaming. So you’re seeing more and more of the streaming players saying, ‘Why don’t we add games as part of my entertainment offering?’ Games have a lower churn rate, music has a lower churn rate, and I’ve been recommending to our clients that they should think about offering a whole slew of other types of digital entertainment. Why not have their podcasts and their digital books and their games and their streaming video under a single, more bundled subscription?”
As head of both streaming and gaming, Perrette would, of course, love to see Max and Warner Bros. Games come together in some form. However, Max needs to learn to walk with TV and film programming before it can run with games.
“We have a lot of ideas, and we think there are natural collaborations that should be able to come to the forefront,” Perrette says. “The reality is, step one in the Max process is doing the basics better. And as part of that, a lot of our energy right now for the first two-thirds of 2024 is just around getting Max launched, re-platformed and out to consumers around the world. As we look at later 2024 and into 2025, it will free up resources in our engineering that can start experimenting with some of the ideas that we have between games and streaming.”
With all the time and money spent on “Hogwarts Legacy” in 2023, the main gaming franchise Haddad and Perrette are focused on expanding is the Potterverse. That includes the previously announced title featuring Quidditch, the wizard sport that was sadly left out of “Hogwarts Legacy,” currently in the beta-testing phase.
Coming up, Warner Bros. Games will be launching “Suicide Squad: Kill the Justice League” on Feb. 2, and they’ll be putting their free-to-play brawler game “MultiVersus” into wide release. (That game features Warner Bros.-owned characters ready to battle.) Looking ahead, the studio has a single-player open-world Wonder Woman action game in the works.
As most legacy Hollywood companies have shifted their games businesses to licensing models, Warner Bros. Games remains the only major studio with an in-house video game business, other than Sony Pictures, which works with its PlayStation corporate sibling under the Sony Corp. umbrella. Whether that’s a better strategy than outsourcing is “a question that has been going on for 25 to 30 years,” says Westcott.
“You’ve seen multiple studios try to bring it in-house and realize, ‘It’s really hard to develop those Triple-A games and make big blockbusters — so why not just license my IP and have someone who is really good at it do it?’ I would say there’s not one single model that’s successful. The question is, do you want to build that core capability within your own organization? Creating high-quality games is a very different business than creating a television series or movie series, and it takes a whole different team.”
But Warner Bros. Discovery is clearly doubling down on its internal efforts with its long-term plans to grow through live games, mobile games and more selective console releases.
“When you ask what our goals are, it’s really that macro goal of making sure that we get as much engagement and time with the fans as possible,” Haddad says.
With more than 707 million hours of “Hogwarts Legacy” played in 2023, Warner Bros. Games is certainly making good progress.
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