AT&T provided new details about its upcoming streaming service, HBO Max, which will launch in May and cost $14.99 per month--about the same as many subscribers now pay for HBO.
HBO Max is AT&T’s entry into the streaming wars as traditional media companies take aim at Netflix with new direct-to-consumer products. AT&T needs for HBO Max to be successful in order to justify its $85 billion purchase of Time Warner, which has been questioned by investors.
The $14.99 price for HBO Max puts it on the high end of streaming products, above Netflix at $12.99 per month, Disney+ at $6.99 a month and Apple TV+ at $4.99 a month.
AT&T set a target of gaining 50 million domestic subscribers by 2025. It also said it expects to have between 75 and 90 million subscribers when Latin America and Europe are added in.
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HBO subscribers on AT&T distribution platforms--about 10 million-- will be offered HBO Max at no additional costs. HBONow.com subscribers will also have access to HBO Max.
AT&T’s video, mobile and broadband customers will be offered bundles that will include HBO Max at no additional charge.
AT&T said it is in “active discussions” with other distributors that would allow their subscribers access to HBO Max.
An ad-supported version of HBO Max will be launched in 2021
“This is an amazing new chapter in the history of AT&T,” said AT&T CEO Randall Stephenson, speaking at a meeting Tuesday on the Warner Bros. lot where the company spelled out its plans. “What they have created is unique. HBO Max. What you're seeing here today, I don't think is like anything else. This is not Netflix, this is not Disney, this is uniquely HBO Max.”
Stephenson said AT&T had the financial strength to be able to invest $4 billion in HBO Max over the next three year and still grow revenues, earnings per share and cash flow.
At launch HBO Max will have 10,000 hours of content. That will include South Park, because AT&T won the bidding for the long-running Comedy Central hit. South Park’s library has been available on Hulu, one of The Walt Disney Co.’s streaming services.
HBO Max subscribers will have access to HBO content, some content from the Turner networks, plus material from the Warner Bros. library. The company is also spending billions of dollars on original content for HBO Max.
AT&T said it intends to "invest significantly" in HBO Max, with an incremental investment of $1.5 to $2 billion in the partial year of 2020 and continued investment in following years. In addition to content, the spending total includes foregone revenue from licensing content to other networks and streaming services, operating expense for the technology platform, and marketing.
During the presentation, AT&T CFO John Stephens said that in order to hit its target of 50 million U.S. subscribers by 2025, HBO Max has a “running start” with about 34 million HBO linear and HBO Now subscribers. The company will be trying to convert as many of those subscribers as quickly as it can to HBO Max. “After what you’ve seen today, why wouldn’t you switch,” he said.
“From there, we plan to build the base steadily with both new, direct-to-consumer subs and wholesale upgrades,” Stephen said, with 36 million subscribers by the end of 2020 and 41 million by the end of 2022.
Including subscription, content and advertising revenue, AT&T expects HBO Max to be generating about $5 billion in incremental revenue by 2025.
“Obviously it takes a high level of investment to make all this happen. For us it's pretty simple. We invest initially to build a sustainable, profitable enterprise. As we do that our incremental revenue grow up and our incremental net investment goes down,” he said.
In year one, incremental costs will be about $2 billion, with no meaningful incremental revenue, according to Stephens. In year two revenue starts to build and net investment lessens. “That story continues until incremental revenues and expenses balance out in 2024.”
Building hBO Max will cost the company between 15 and 20 cents of earnings per share in 2020 and 10 cents in 2021 and 2022. That earnings hit flattens out before turning accretive in 2025.
“With this entire company coming together, we will have one of the most robust collections of premium streaming content that will appeal to all demographics in the household, and be able to achieve incredible scale and reach right out of the gate,” said Robert Greenblatt, chairman of WarnerMedia Entertainment and Direct-to-Consumer. “We couldn’t achieve this without AT&T’s unprecedented and enthusiastic support. When you live in a world with ‘dragons’ — it feels very good to have one of your own in the game!”
The company made a number of content announcements.
HBO made a straight to series order for House of the Dragon, a 10-episode Game of Thrones prequel, looking at House Targaryen 300 years earlier. Game of Thrones creator George R.R. Martin is a co-creator.
New Max Originals include:
