What a difference a couple of years makes. Also, what does that difference say about this current oh-so-messy transitional state of streaming video?
If last month’s man-bites-dog headline — “Netflix launches ad-supported tier” — wasn’t proof enough of changed attitudes, news this week that HBO Max is (re)joining Amazon Prime Video’s Channels program would cinch it.
Back in mid-2020, that halcyon time (for streaming video, at least) just 2 1/2 years ago, the newly launched HBO Max was still finding its way.
The new boss, Jason Kilar, hated the service’s initial launch, branding, and more, and quickly reorganized several top executives out of their jobs. The pandemic delayed several original productions, giving consumers fewer reasons to sign up. And HBO Max was tussling with Roku and other platforms over carriage deals, which meant it wasn’t available to many millions of potential customers.
Despite all that, Kilar knew one thing: being “direct-to-consumer” meant actually, you know, engaging directly with consumers, not delegating that relationship to a cable provider or other wholesaler. It meant owning the billing relationship, handling the marketing, and smartly harvesting user data to shape content, promotions, recommendations and, eventually, advertising.
And that meant ditching a distribution deal with Amazon to sell HBO Max through Channels to its then-150 million or so subscribers. HBO and predecessor streaming service HBO Now had been on Channels since 2016, to be superseded by HBO Max.
Kilar had sensible reasons for the divorce: Amazon takes as much as 50% of subscription revenue from its many partner networks, plus Kilar wanted to seize back all that data to improve HBO Max’s weak user interface.
But emancipation had one big downside: HBO Max left behind more than 4 million subscribers on Channels who no longer would be indirect customers. A sacrifice, to be sure, but the company reckoned those customers would find sign back up directly soon enough.
Besides, Kilar had rich uncle/corporate parent AT&T and its hefty wallet to cushion any missteps as he tried to transition a century-old media conglomerate into entertainment’s future.
Then Discovery engineered the coup/corporate takeover of the decade, and HBO Max and the rest of WarnerMedia joined with undersized Discovery and $55 billion in debt. Bye bye, deep pockets. Hello, endless rounds of staff cuts and a fundamental rethinking of what it means to be HBO Max.
Which brings us to late 2022. Tactics that made sense just 30 months ago don’t now.
Now, Wall Street cares more about how much your company makes from each subscriber than how many of them you added this quarter. It cares about keeping those customers around. It cares, a lot, about how soon your streaming service will make money.
If you can’t compete with Netflix, Disney and the tech giants, despite much-loved shows such as Euphoria, White Lotus, and House of the Dragon, Wall Street wants you to get cash flow wherever you can. That’s especially so when you still have nearly twice as much debt as your company is worth. Giving up some customer data to drive cash flow is a newly worthwhile sacrifice.
So, like a boomerang baby moving back into the parents’ house after being laid off, HBO Max is back in the bosom of Amazon Channels.
"Warner Bros. Discovery is committed to making HBO Max available to as broad an audience as possible while also advancing our data-driven approach to understanding our customers and best serving their viewing interests,” WBD’s Chief Revenue and Strategy Officer Bruce Campbell said in a release.
The release, it’s worth noting, didn’t detail how HBO Max will advance that “data-driven approach” with the deal, but perhaps Amazon will share more with WBD than it ever has with anyone else.
And it’s not just wholesale deals like Channels that are in play here. WBD CEO David Zaslav acknowledged at an investor conference last month that the company is chasing cash flow everywhere, including as an “arms dealer” selling its shows to the highest bidder, no longer reserving them all for HBO Max.
WBD is already selling shows to Amazon, including The Peripheral, a Warner Bros. TV adaptation of the William Gibson novel that has been a solid hit with both critics and viewers.
“We wouldn't sell everything to them,” Zaslav said, though The Peripheral would have been a natural fit for HBO/HBO Max, coming as it does from Westworld creators Lisa Joy and Jonathan Nolan. “But they're an important company, they have a broad reach, and there are a number of other companies that also do.”=
Not mentioned: Amazon also could afford The Peripheral’s pricey $80 million production cost, for just eight season 1 episodes.
In a prescient paragraph written back in mid-2019, LightShed Partners analyst Rich Greenfield wrote that, just because legacy media companies knew how to make great shows didn’t guarantee they would win with DTC streaming.
“Unfortunately, what media companies are missing is a full appreciation that content is only a small part of the DTC equation, with technology and data analytics equally, if not more important,” Greenfield wrote. “Gross Adds, Subscriber Acquisition Cost, Lifetime Value, Retention Marketing and Churn are simply not part of legacy media’s core DNA.”
Back when HBO Max began extricating itself from Channels, Greenfield and many other analysts said it might be a good idea, given the potential for harvesting all that data and building a better service (critics still hate HBO Max’s user interface).
Now we’re in an era where WBD has little room for experiments or investing in the future. Even mashing Discovery Plus into HBO Max, as will happen in a few months, and giving it the unsearchable and inexplicably lame name of Max won’t change that. =
Zaslav is promising $6 billion in free cash flow by 2024, as the company keeps slashing pretty much everything, and does more deals like Amazon Channels and that sale of The Peripheral (it appears likely to get a second season).
Expect more deals like this. And in 2024, maybe WBD will find a comforting new home that will finally rescue the company from endless cost cuts and allow it become a sustainably Max source of entertainment for years to come.
