HBO Max is here to take on Netflix. Is it too late?

AT&T’s streaming platform goes live on May 27. At $15 a month, it’s more expensive than its rivals and comes at a time when household income is dropping.

HBO has been an innovator for much of its nearly 50-year run. Now, with the unveiling of HBO Max, it’s playing catch-up.

In the 1970s, when people still referred to it as Home Box Office, HBO was a pioneer in bringing recent movies to the American living room in all their uncut glory. Another innovation came in the late 1990s, when HBO ushered in the era of prestige TV with original programs built around protagonists like Larry Sanders, Tony Soprano and Carrie Bradshaw who could not exist comfortably within the limits of the broadcast networks.

But with the launch of the ambitious HBO Max streaming platform on Wednesday, the cable channel is a late entrant to the streaming wars.

AT&T, the parent company of HBO since 2018, plans to spend more than $4.5 billion on the project over the next few years. The company hopes to have 50 million HBO Max subscribers by 2025 and envisions that the service will eventually generate billions in annual profits as it takes on Netflix, Disney Plus, Amazon Prime Video, Hulu, Apple TV Plus and Peacock, among others, in the increasingly crowded field of online entertainment.

The idea of creating a major streaming platform drove AT&T’s decision to buy Time Warner, the media empire that housed HBO, TBS, TNT, CNN and the Warner Bros. film and television studios.

When it is fully up and running, HBO Max, available at $15 a month, will offer 10,000 hours of programming with a wide range of content meant to appeal to every kind of audience, not just the HBO crowd.

The platform will include HBO series like “Game of Thrones” and “Succession”; sturdy sitcoms from the Warner Bros. television archive like “Friends” and “The Big Bang Theory”; some 2,000 Warner Bros. movies, including the eight Harry Potter films and blockbusters featuring DC Comics superheroes like Batman, Superman and Wonder Woman; and original fare like “Love Life,” a series starring Anna Kendrick, and “Let Them All Talk,” a film directed by Steven Soderbergh and starring Meryl Streep.

Soon after AT&T completed its $85.4 billion purchase of Time Warner, John Stankey, a veteran AT&T executive with limited experience in entertainment, broke down the divisions across the newly acquired properties to create WarnerMedia. Shortly after that, at a town-hall-style meeting in Manhattan before an audience of HBO employees, he let them know their territory was under a new boss.

“As I step back and think about what’s unique about the brand and where it needs to go, there’s got to be a little more depth to it,” Stankey said. “There’s got to be more frequent engagement.” To achieve that, he added, HBO had to become “broad enough” to attract a larger audience.

A leadership shake-up followed, one that included the departure of HBO’s chief executive, Richard Plepler, who had led the network to more than 160 Emmys.

Stankey was promoted this year to one of the biggest jobs in corporate America: chief executive of AT&T. He will take the reins from Randall Stephenson, the leader of AT&T since 2007, on July 1.

The future of the revamped AT&T largely depends on HBO Max.

The choice of Jason Kilar as WarnerMedia’s new chief executive was another sign of the company’s emphasis on streaming media. A onetime head of Hulu, Kilar is a veteran of the earliest days of on-demand video.

Since starting the job this month, he has been working closely with the WarnerMedia leadership team, including Robert Greenblatt, the chairman of the entertainment group, and Kevin Reilly, the head of content.

Kilar has charged ahead with putting together a future iteration of HBO Max that will allow for commercials. When it is ready, the company will be able to offer a cheaper version of HBO Max, in addition to the $15-a-month, ad-free version, that will be a direct competitor to advertising-supported streaming services like Hulu and NBCUniversal’s Peacock.

HBO itself is not going away. The premium cable network, whose latest shows include “The Plot Against America” and “Run,” will continue under its president of programming, Casey Bloys. But AT&T will focus on redirecting viewers’ attention to the new streaming platform. The phone giant hopes that HBO’s 35 million subscribers, each of whom pays $15 a month, will shift their loyalty to HBO Max, which costs the same.

To Stankey, it’ll be a gauge of brain power. “I look at it as a degree of an IQ test, which is: Why wouldn’t you want twice the content for the same price?” he said at an event for investors in October.

The HBO network can currently be bought in two ways: online through HBO Now, or through a cable provider, which offers digital access through HBO Go. HBO Max is an altogether new, much larger product that includes HBO proper.

A potential stumbling block for it is the cost. Netflix’s no-frills plan costs $9 a month. Disney Plus charges $7 a month. But HBO Max is asking people to spend $15 a month, at a time when household budgets are constrained by the economic fallout from the coronavirus pandemic.

Even before the outbreak, industry analysts called the pricing “unreasonable.” Now many customers are looking to cancel their HBO accounts, largely because of the cost, according to a study prepared for The New York Times by the global research consultancy Kantar.

The analysis found that 1 in 5 people who subscribed to HBO Now said they planned to cancel their subscription in the coming months; a similar proportion said they planned to drop their subscriptions to the HBO channel through their cable providers.

That’s a high opt-out rate. A little more than 7.4% of Netflix customers said they planned to dump their accounts, according to Kantar, and about 8.6% of Disney Plus customers said the same. Amazon Prime Video appears more durable, with 1.2% saying they would cancel.

AT&T cannot convert all HBO subscribers with the push of a button. Customers of the phone giant who already have HBO, as well as those who buy it directly from the network, won’t be much of a problem. But the company has a challenge in bringing aboard those who get HBO through Comcast, Amazon and Roku — three of HBO’s biggest vendors. WarnerMedia is in negotiations with those companies.

Longtime HBO subscribers will also have to get used to a revised brand identity. The HBO name will no longer stand for Tony Soprano or Jon Snow, but will serve as the marquee name of a mass-appeal platform meant to rival Netflix, which has 183 million subscribers, 63 million of them in the United States.

Matthew Ball, a venture investor and the former head of strategy for Amazon Studios, said major streaming platforms needed more than shows beloved by critics to succeed. “If Netflix only offered HBO-style content, it would be smaller,” he said.

HBO Max is a different animal than the boutique network that gave it its name, he added.

“It’s an attempt to go after every customer,” Ball said. “There is no reason to believe the Max-related expansion can’t appeal to every customer Netflix currently has that HBO does not.”

Some people in the industry say that the rival streaming services may eventually reach agreements that will allow them to share their customers in some way.

“They will have to start to combine into more user-friendly aggregations,” said Craig Moffett, a co-founder of the Wall Street research firm MoffettNathanson. “It’s not necessarily the case that some won’t make it — but it is almost certainly the case that some won’t make it on their own.”

That type of cooperation has precedent in the cable TV business: HBO was often sold to subscribers in a bundle with similar channels like Showtime and Starz. But that approach may not fit Stankey’s mindset.

In the summer of 2018, Stankey met with leaders of the former Time Warner properties. In a meeting with the HBO team, several executives raised the possibility of bundling HBO Now with Netflix, according to several people who were present. Proponents of an alliance noted surveys that showed an overlap between the two platforms’ customers, the people said.

Stankey, who stands 6 feet, 2 inches and speaks in a deep bass that can ripple across a room, said, “No! They are the enemy. We’re going to crush them,” according to the people. (WarnerMedia did not respond to requests for comment on the meeting.)

Several of those present saw it as a knee-jerk response from a longtime AT&T hand used to battling rivals Verizon and T-Mobile. Indeed, the wireless industry has been plagued by price wars (and declining profits) as the companies fight it out for customers who are constantly switching to a better offer.

But the telecommunications industry has zero-sum rules. While the average streaming subscriber pays for three platforms, according to Kantar, almost no one buys more than one mobile service at a time.

AT&T’s $85 billion gamble on Warner Media was partly a way for the company to make its phone service more attractive. It plans to offer HBO Max discounts to phone-plan subscribers and hopes to hang on to them by providing content that will keep them glued to their screens.

In an interview last month, Stankey said the “winner in all this” — meaning the streaming landscape — will be the company that does the best job of “innovating,” and that includes both content and technology.

“The customer is driving different forms of entertainment, and it’s changing by the day,” Stankey said. “But we have a tremendous base of assets, and we’ve wrapped it in a compelling product with innovation. That’s what HBO Max is. That’s why I like our chances.”

c.2020 The New York Times Company

Moneycontrol Ready Reckoner
Now that payment deadlines have been relaxed due to COVID-19, the Moneycontrol Ready Reckoner will help keep your date with insurance premiums, tax-saving investments and EMIs, among others.
Download a copy Get best insights into Options Trading. Join the webinar by Mr. Vishal B Malkan on May 28 only on Moneycontrol. Register Now!