HBO Max Packs a Punch, If Only It Were Ready for Prime Time

(Bloomberg Opinion) -- HBO Max — the much-anticipated online video offering unveiled by AT&T Inc. Tuesday evening — is compelling. It’s expensive. And it’s very late. That’s true whether you’re simply a consumer of TV, or a shareholder of the wireless giant.

During an event held in Los Angeles that served as a cross between a movie premiere and a corporate earnings call, AT&T’s WarnerMedia division showcased HBO Max in what was considered a critical opportunity to validate the phone company’s foray into streaming with its signature product. It’s also the capstone project of AT&T CEO Randall Stephenson’s more than two-year fight to acquire Time Warner.

HBO Max is set to launch in May for a subscription price of $14.99 a month, which will give viewers access to HBO’s popular work, alongside other programming from its sister brands, including Warner Bros., TBS, and Cartoon Network. The product is a manifestation of WarnerMedia CEO John Stankey’s efforts to break down the silos across those creative houses and make them work in unison for their new parent, AT&T. But it’s late to the game. Apple TV+ comes out this Friday, followed by Disney+ Nov. 12.

One by one, Stankey and his team took the stage Tuesday to exhibit the vast collection of content HBO Max will carry, from classic favorites like “Game of Thrones,” “Friends” and the DC Comics films — including the recent “Joker” release — to upcoming original series such as “Run,” a romantic dramedy starring Merritt Wever, as well as “Lovecraft Country,” another Jordan Peele take on horror. A longtime executive of the wireless company, Stankey has worn many hats, including also currently serving as its chief operating officer. He left investors with this overarching message: That they “should have great confidence in the company’s strategy” and its managers.

Walt Disney Co.’s splashy April presentation for Disney+ set a high bar for these types of unveilings, but the HBO Max act came pretty close at matching the wow factor. And for non-fans of Marvel and “Star Wars,” or those who don’t require as much G-rated animated flicks to entertain small humans, HBO Max may even offer a more binge-able mix of shows and movies than its Disney rival. 

With HBO Max, AT&T — like its old-world rivals in media and entertainment — is hoping to recreate the success of Netflix and bring back customers who have canceled services such as AT&T’s DirecTV in search of cheaper online options, ideally those that provide on-demand content without commercials. It’s hard to imagine how a telecommunications behemoth could fare any better in Hollywood than the pros at Disney, or tech giants like Amazon.com Inc. that have deep pockets and much more forgiving shareholder bases. But the AT&T strategy is more convincing when looked at this way: A content offering could help the company better retain customers of its lucrative wireless service.

Early on in his presentation, Stankey talked about churn (the rate at which AT&T loses customers) and said that each basis point of churn improvement translates into $100 million of revenue. If the underlying goal for HBO Max is to differentiate AT&T and keep its cash cow growing, that’s a much easier argument for investors to grasp and support.

With a jumpstart from converting HBO’s more than 30 million U.S. subscribers, AT&T expects HBO Max to have 75 million to 90 million subscribers by 2025, at which point it will finally begin to make money. For a comparison, Disney+ is similarly projecting 60 million to 90 million subscribers by 2024 and to turn profitable that same year. But the fact that HBO Max plans to release an ad-supported version in 2021 speaks to the challenge of earning money from relatively low-priced subscriptions, rates that still aren’t quite low enough for many consumers accustomed to the greater variety offered by traditional cable packages. 

At $15 a month, HBO Max may be seen as a good deal — it’s the same price as HBO Now, the network’s current direct-to-consumer app, and contains way more content. But it’s also more than twice the price of Disney+ at $7 a month. Apple TV+, a different animal given its lack of a library backlog, is $5 a month. That said, AT&T will give its wireless customers who have HBO the new service for free in a bid to create buzz.

AT&T is joining the streaming wars just as they claimed their first victim. Sony Corp. announced Tuesday that it will shut down its PlayStation Vue live-TV app after just four years. The company did a poor job of pushing Vue to owners of PlayStation consoles, which should have been its easiest customer wins. This is instructive for AT&T, which itself has had a confusing assortment of pay-TV products with brand identity issues and marketing missteps. (Try explaining the difference between HBO Now, HBO GO and HBO Max, for starters.) In fact, the theme at AT&T this week has been to clarify its vision, starting Monday with a detailed list of steps it’s taking to improve shareholder value and address shortcomings vocalized by activist investor Elliott Management Corp.

One thing’s for certain: AT&T is willing to spend what it takes to battle Netflix, Disney, Apple and Amazon. It’s investing $2 billion in HBO Max next year, and it recently struck an eye-popping deal to work with prolific director J.J. Abrams. Abrams, making an appearance at Tuesday’s event, said, “There's no company that values storytelling more than WarnerMedia.” He’s not kidding!

Pour one out for PlayStation Vue. And better luck to AT&T in the streaming wars.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

©2019 Bloomberg L.P.