Warner Bros. Discovery on Tuesday announced that the premium $14.99-a-month version of HBO Max will return to the Amazon Prime Video Channels marketplace in the U.S., reversing an extraction that cost the subscription streaming service dearly in its first 30 months on the market.
Amazon Prime Video members will be able to sign up, enjoy and pay for the HBO Max service using no other app besides Prime Video. HBO Max will join sibling SVOD Discovery Plus, which was placed into Amazon's wholesale market for video services back in April.
WBD is in the process of combining both SVOD services into a platform that will likely be called "Max." And it now seems likely that the combined platform will be sold via Prime Video Channels, too.
Neither Amazon or WBD have disclosed financial terms of the relationship. Amazon takes as much as 50% from some content makers to include their wares on Prime Video. It also controls data and the user experience for services sold through Prime Video Channels -- this was a major reason why Warner's previous regime fought hard to "disaggregate" HBO Max from the market.
However, for the new Warner regime headed by CEO David Zaslav, the distribution benefits that come with participating in Channels far outweigh the loss of user relationship control and ARPU.
HBO Max had already been integrated into other wholesale platforms, including Verizon +play. And everyone knew a restoration to Amazon was coming.
Also read: HBO Max Goes 180 on Amazon Channels-Style 'Disaggregation,' Signs Onto Verizon +play
"We think we've got the best product, and we should have as many people pushing it as possible," WBD CEO David Zaslav said last month during his company's Q3 earnings call, responding to an analyst's question about the return to Channels.
"I was up with [Amazon CEO] Andy Jassy two weeks ago at his house," he added. "Amazon is formidable. There's a lot that we've been doing together that has been helpful to us. They are buyers of our content. Before we weren't selling any content to them, now we're selling content to them. We wouldn't sell everything to them. But they're an important company, they have a broad reach, and there are a number of other companies that also do."
Zaslav has made many key decisions that have reversed course on a "streaming first" agenda established for Warner by AT&T, which spun off the media company and combined it with Discovery earlier this year.
But the about-face on Channels perhaps marks the most dramatic -- and expensive -- about-face of them all.
Warner finally extracted Max from Channels in the third quarter of last year, a move that the previous regime said immediately cost the service around 5 million subscribers at the time.
And even through the third quarter, WBD was still feeling the sting. The company said it had finally "lapped" its previous Amazon wholesale deal, but that final vestige still resulted in a 6% year-to-year decline in direct-to-consumer revenue.
For HBO Max, however, the impact of the Channels extraction dates back all the way to its May 2020 launch, which came without app support from the No. 2 connected TV device gateway in North America, Amazon Fire TV.
Predecessor app HBO Now enjoyed a fruitful distribution relationship with Channels, capturing the majority of its new subscribers via the platform. However, when AT&T and Warner signaled their intention to remove the new "Max" iteration of HBO from Channels, Fire TV negotiations became tense.
HBO Max app support for Fire TV-powered smart TVs and other CTV devices wasn't enabled until the following November, eight months after the Max launch. With app support on Roku also an issue (that didn't come until December 2020), not to mention the instability of the initial HBO Max app, the platform's early growth was disappointing.
And there were rumors at the time that Warner's pricey deal with Amazon Web Services was signed to soothe the loss of HBO Max from Channels and get the app supported by Fire TV.
But the pain was largely seen by the investor community as worth it. Disney had worked to launch its direct-to-consumer Disney Plus sans disaggregation via Amazon, Apple and Roku "channels" wholesale, why shouldn't HBO Max?
Writing in a July 2019 investor note, in the run-up to the HBO Max launch, LightShed Partners' Richard Greenfield estimated that "less than 5%" of HBO users watched the service directly on the HBO Now app. Most of them got HBO either via their MVPD or via wholesale through Amazon or Roku.
Sure, these services build scale and reduce churn, Greenfield wrote. "But from a legacy media company perspective, we have to wonder why they are even bothering to build out DTC offerings if they plan to cede the consumer experience, billing and the overwhelming majority of data/analytics to a third-party.
This is even more troubling in the case of Amazon and Apple, where they are creating competitive content offerings (Prime Video and the to-be-launched Apple TV+)," Greenfield added ... "Why go through all the effort of building and iterating your own proprietary apps if the vast majority of subscribers will not even use the apps you build? We also have to believe that you lose brand identity for your DTC offering when the content is unbundled from the service on these channel platforms, further diminishing the original reason for building a DTC business."
In the end, AT&T and the erstwhile WarnerMedia under former CEO Jason Kilar embarked on a much tougher growth journey than they otherwise might have, backed by Wall Street.
Three years later, with investors gasping at the $600 million quarterly EBITDA costs associated with WBD's DTC efforts, Zaslav appears to have provided a response: "We can now take a look at what happened with the Old Time Warner leadership team. What happened with the AT&T leadership?," he said during last month's earnings call.
"How many subs did that actually get them?," Zaslav added. "What was the engagement for that? How much money did they spend to get that? And how much money they're spending in this area and is there any return. So it's very easy for us because we can be Monday morning quarterbacks. And we're taking full advantage of that. And we're not going to make those same mistakes."
