HBO Max’s Grand Unveiling Centers on How Expensive It Will Be

(Bloomberg) -- What’s the max you’d pay for HBO Max?

That’s the question facing AT&T Inc., which is pulling back the curtain on its much-anticipated streaming service Tuesday. The company has already announced that a slew of old and new programming will appear on HBO Max when it debuts next spring. But one detail hasn’t been revealed: the price.

Analysts expect AT&T to disclose that figure at an event on Tuesday -- and it could determine how well HBO Max performs against Netflix, Disney+ and other streaming rivals. But there’s little doubt that AT&T will aiming for the high end.

HBO, the premium cable-TV brand, is the centerpiece of the new service. And because AT&T charges $15 a month for an online HBO subscription, seeking anything less than that for the new streaming package could be difficult.

That will force AT&T to justify why its service costs so much more than everyone else’s. Apple TV+, which debuts Friday, will be $4.99; Disney+, which launches Nov. 12, will be $6.99; and for $12.99, you can get a standard Netflix subscription or a bundle with Disney+, Hulu and ESPN+.

“Taken together, these price points make the proposition for HBO Max more difficult for consumers,” John Hodulik, an analyst at UBS Group AG, said in a recent note to clients.

At Tuesday’s presentation -- to be held at the Warner Bros. studio lot in Burbank, California, where “Casablanca” and “Friends” were filmed -- AT&T executives will argue that the trove of content will justify its price.

‘Harry Potter’

Bob Greenblatt, chairman of AT&T’s WarnerMedia Entertainment, is expected to highlight how the service will offer everything on HBO and much more, including “Game of Thrones,” “Friends,” “The Fresh Prince of Bel-Air” and the “Harry Potter” films.

While HBO traditionally served more male viewers, HBO Max will aim for a broader demographic.

AT&T announced several new shows and movies aimed at women, including a competition series for florists and programming with stars like Ellen DeGeneres, Melissa McCarthy and Nicole Kidman. The service also will feature a romantic comedy from Lions Gate Entertainment Corp. called “Love Life” starring Anna Kendrick.

At one point, AT&T approached Discovery Inc., which owns networks such as HGTV, the Food Network and TLC, to license more female-oriented shows for HBO Max, but Discovery declined, according to a person familiar with the matter.

The service also will offer content for kids and families, including material from HBO’s deal with Sesame Workshop and the film library of Japanese animation house Studio Ghibli.

Moreover, HBO Max will play to its owner’s biggest strength: its distribution muscle. AT&T has about 170 million customer relationships from its wireless, broadband and TV business. It sees HBO Max as a way to attract new wireless subscribers or keep the current ones.

For instance, HBO Max will be free to the 10 million people who already get HBO through an AT&T service, Reuters reported. It’s part of a push to make good on AT&T’s $85 billion acquisition of Time Warner Inc. in 2018.

Disney’s Rally

AT&T executives hope Wall Street will react the same way to Tuesday’s HBO Max event that they did for Walt Disney Co. in the spring. When that company unveiled details about Disney+ in April, its shares saw their biggest intraday gain since 2009.

Still, HBO Max is an expensive bet for AT&T, one of the most indebted companies in the world. AT&T plans to spend between $1.5 billion to $2 billion on HBO Max programming in 2020, according to Philip Cusick, an analyst at JPMorgan Chase & Co. For comparison, Disney plans to spend over $1 billion on original content in fiscal 2020 for Disney+.

On an earnings conference call Monday, AT&T Chief Executive Officer Randall Stephenson projected that HBO Max could get 50 million U.S. subscribers in five years. That would give it nearly 20% of the U.S. streaming market by 2025, according to Bloomberg Intelligence.

Race for Subscribers

LightShed Partners analyst Rich Greenfield said in a note to clients that reaching 50 million users “does not appear that challenging,” given that HBO already has about 37 million domestic subscribers. “A broader array of content will help reduce HBO’s churn and increase its appeal to a wider array of consumers,” Greenfield said.

“The question for WarnerMedia management is does adding an incremental 12 million subscribers from current HBO levels justify the decision to increase the content on HBO dramatically via HBO Max and shift library from third-party licensing to HBO Max?” he said.

Netflix has about 60 million subscribers in the U.S. And Disney+, which is geared toward families, is aiming for 60 million to 90 million customers globally in the next five years.

Besides revealing HBO Max’s price, AT&T could use the event to clear up any consumer confusion. AT&T has over a dozen streaming services, offering everything from live TV to niche shows, according to Barclays Plc analyst Kannan Venkateshwar. HBO Max will be its fourth brand with HBO in the name, including the TV channel itself and online versions HBO Go and HBO Now.

On Monday, Stephenson suggested AT&T will simplify its offerings by making HBO Max its on-demand streaming service for the future.

HBO Max will not only have more to offer than traditional HBO, he said. It will also be distinct from the other streaming services.

“This is not Netflix,” Stephenson said on Monday’s earnings call. “This is not Disney. This is HBO Max, and it’s going to have a very unique position in the marketplace.”

©2019 Bloomberg L.P.