AT&T launched HBO Max nearly two years ago and if you take recent numbers from AT&T into account, it's already a success.
According to the company, HBO and HBO Max finished its first quarter with 76.8 million subscribers globally, up 12.8 million from a year ago. The report came less than a month after AT&T completed its spin-off of WarnerMedia with Discovery, creating media behemoth Warner Bros. Discovery.
The deal effectively pulls AT&T out of the content waters. AT&T paid $85 billion for Time Warner Inc. three years ago. Its deal with Discovery values the WarnerMedia assets at $43 billion worth of cash and debt. Shareholders will have a 71% stake in the new company.
“Warner Bros. Discovery will aspire to be the most innovative, exciting and fun place to tell stories in the world--that is what the company will be about," said David Zaslav, president and CEO of the combined company, in a statement.
HBO Max Plus Sizing
HBO Max includes all of HBO’s programming, plus exclusive “Max Originals.” While that last may seem like just another value add, it’s not. It could be the real prize.
WarnerMedia has already reoriented its programming resources from its cable networks to the online video offering. An analysis published earlier in February 2020, three months before HBO Max's launch, by Ampere Analytics found that while new streaming shows accounted for just 7% of WarnerMedia's original commissions in Q4 of 2018, streaming commissions represented 73 percent of WarnerMedia’s new TV projects by Q4 of 2019.
The HBO Max programming pipeline includes The Flight Attendant, starring Kaley Cuoco; Ridley Scott's sci-fi drama Raised by Wolves; a Green Lantern series from Arrowverse creator Greg Berlanti; Jean Smart comedy and critical darling Hacks, which was recently renewed for a second season; and a Gossip Girl reboot from that show’s original creators. Gossip Girl was also renewed recently.
“This is the clearest sign yet that the home of the juggernaut Game of Thrones (that’s HBO) will in the future play second fiddle to HBO Max,” said Fred Black of Ampere Analysis. And it’s not just the number of commissions, says Black, but also “the types of content being commissioned.”
“Everything,” one veteran producer told The Hollywood Reporter, “is dictated by the needs of HBO Max.”
What type of content does HBO Max need? Mostly genre shows. The whole of Warner’s cable empire commissioned only four sci-fi and fantasy titles last year, while the gestating HBO Max ordered 12 new genre series.
Still, stresses Robert Greenblatt, the onetime NBC chief and former chairman of WarnerMedia Entertainment, HBO’s traditional ethos will serve as inspiration: “HBO’s world-class programming leads the way, the quality of which will be the guiding principle for our new array of Max Originals.”
WarnerMedia's programming strategy is already starting to pay off. Thanks in part to HBO Max, HBO overtook Netflix (130 nods vs. 129) for most Emmy nominations in 2021 and continued that trend in 2022 with 140 nods for HBO and HBO Max and 105 for Netflix.
For consumers, HBO Max costs $14.99 a month. A cheaper, ad-supported version of HBO Max launched for $9.99 in June.
If you want to pay for a full year, the ad free version will cost you $149.99 and the ad supported version will run $99.99, a 15% discount.
AT&T's Big Bet
Speaking of charges, AT&T paid $50 billion for DirecTV in 2015. It appears to have gotten very little out of the acquisition even though, like HBO Max, former AT&T CEO Randall Stephenson made the satellite TV company central to his video strategy.
“Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market,” said activist investor group Elliott Management last September. According to The Hollywood Reporter, DirecTV was worth $40 billion in 2019. That’s a $10 billion drop in just four years. In 2021, that value has plummeted even further.
AT&T recently completed its spinoff of DirecTV along with AT&T TV and Uverse into a new company. The deal, with TPG, values AT&T's pay TV assets at $15 billion.
There's no word yet as to whether DirecTV, AT&T TV and Uverse subs will have to start paying for HBO Max with the spinoff. But DirecTV did cut its free promo of HBO Max from 12 to 3 months in August.
According to the Washington Post, AT&T didn’t just pay $85 billion for Warner’s assets, it also assumed $23 billion in Warner’s debt. That comes out to, let’s say, $105 billion, more than twice as much as the DirecTV deal.
One of Elliott Management’s chief concerns is the mounting debt from this recent $200 billion acquisition spree.
Then again, those subscribers fleeing DirecTV are flocking to streaming services, which makes HBO Max — and by extension the WarnerMedia deal — very important to AT&T’s future. A successful HBO Max could have a profound halo effect on the mothership’s legacy cell phone and internet service businesses.
"We’ve got this HBO Max quality product and AT&T TV quality product to bundle with our wireless,” said AT&T CFO John Stephens in January. “I kind of look at my competitors in the wireless side and see one of them bundling Netflix, and you see another one bundling Disney and I get that… When I think about it, I actually smile because it reinforces our thought processes on HBO Max. The difference is, is I have owners’ economics, and I have the umbrella of ownership of both.”
Stephenson recently pledged the company would be laser focused on such synergies, promising not to make any major deals in the next few years. He also predicted that, “over the next four or five years,” HBO Max would become “a 50 million subscriber business.”
Stephenson's promise, however, was broken with AT&T's WarnerMedia-Discovery deal.
HBO Max's Warner Bros. Discovery Fate
Warner Bros. Discovery has big plans for streaming. And while HBO Max will stay the same for now, the new company is looking to combine HBO Max with Discovery Plus into one "blowout DTC product."
“Right out of the gate, we’re working on getting the bundling approach ready,”
Discovery chief financial officer Gunnar Wiedenfels said at the Deutsche Bank Annual Media, Internet & Telecom investor event in March. “But the main thrust is going to be harmonizing the technology platforms, building one very strong combined direct-to-consumer product and platform, and that’s going to take a while.”
Merging products, Wiedenfels added, will help the newly combined company reduce costs.
While details on the combined DTC product are scarce, it will launch in the U.S. sometime next summer.
European Expansion
Warner Bros. Discovery is putting the brakes on HBO Max's international expansion, the company announced in July.
The service is currently available in 61 countries. But with WBD's announcement, HBO Max originals will be pulled from some countries. Additionally, any local productions not already in production will be axed.
In the European countries the service remains available, pricing is competitive, even undercutting Netflix in some regions.
The streaming service is also available in 39 Latin American and Caribbean territories. ■
