HBO Max is key to the future of AT&T’s entertainment empire, which helps explain why former Hulu chief Jason Kilar was just named WarnerMedia’s next CEO.
Although Kilar will oversee all of WarnerMedia — which encompasses Warner Bros., Turner, and HBO — when he takes over on May 1st, there’s an emphasis on HBO Max. In a statement, AT&T COO John Stankey specifically points out that Kilar’s experience with the direct-to-consumer market (his years as Hulu CEO between 2007 and 2013), “gives us the right management team to strategically position our leading portfolio of brands.”
HBO Max is more than just an experiment for AT&T. AT&T CEO Randall Stephenson described it as a “meaningful business” to the company that will play out over the next four to five years. The reason is clear from WarnerMedia’s earnings. AT&T, like every other company with a cable division, is betting big on cord cutting. Despite WarnerMedia falling just over 3 percent in revenue to $8.9 billion in its most recent quarter, the division reported subscriber growth on the digital side. HBO saw a 1.9 percent increase in revenue thanks to HBO Now and HBO Go gains, while Turner saw a 1.6 percent increase in revenue, also thanks to subscriber gains.
On top of that, AT&T’s traditional TV subscribers are continuing to fall steeply — the company reported a loss of more than 1.2 million subscribers on the pay-TV front. AT&T’s premium services like DirecTV saw a net loss of 945,000 customers, while its virtual TV offering, AT&T TV Now (similar to Hulu TV and YouTube TV), saw a loss of 219,000 customers. Added up, AT&T’s existing TV subscribers have dropped 20 percent between December 31st, 2018 and February 2020.
Being able to transition those cable cutters into paying HBO Max subscribers is AT&T’s big goal. It’s also something that Kilar has thought about for years. In 2011, Kilar wrote that television’s future was in networks and studios going straight to consumers or licensing their titles to streamers like Netflix and Hulu. Kilar noted that to serve consumers, both advertising-supported and subscription-only options would be introduced.
At the time, Hulu (then Hulu Plus) and Netflix were two of the biggest companies licensing content from networks like NBC, ABC, CBS, and Fox and distributing them to consumers for a lower price than cable. It worked. Hulu doubled its subscribers between 2011 and 2012. It continued to grow incrementally in the years following, jumping from 3 million subscribers in 2013 to 4 million, and 4 million to 6 million between 2013 and 2014. Netflix saw enormous growth (thanks in part to high-profile originals like House of Cards, Orange is the New Black, and Unbreakable Kimmy Schmidt), jumping 5 or 6 million subscribers every year between 2011 and 2014.
This, Kilar argued, was the easy part. Kilar noted that “any number of digital distribution companies have the ability to quickly get to scale.” He added that Hulu sees an advantage for networks and studios that are super focused on delivering to a subscriber who returns every single month to consume content — or, as he framed it, “a greater percentage of the pie should flow to content owners and creators in the future.”
That’s where the industry is now. Disney, WarnerMedia, and NBCUniversal are pulling a number of their shows from Netflix and Hulu, and they’re using their libraries to instead build their own streaming services. Stephenson told investors at a previous event in 2019 that part of the company’s marketing plan behind HBO Max is to showcase how different it is from its competitors, noting, “This is not Netflix. This is not Disney. This is HBO Max.”
Just because the word HBO is in the title doesn’t mean that Max is a guaranteed win. There are some issues facing the service that Kilar will have to navigate. HBO Max is one of the most expensive streaming services, coming in at $14.99 a month — a price that AT&T can’t budge on as it would undermine the cost of HBO as an add-on channel via cable and WarnerMedia’s current HBO Now service.
HBO Max is also a general entertainment platform, with WarnerMedia investing heavily in teen and family programming, but HBO doesn’t translate to family friendly as well as Disney does. Not to mention that as the novel coronavirus pandemic continues to keep people home, with millions of people potentially dealing with layoffs, nonessential monthly costs like streaming services may be the first to go. It’s going to compete with streamers like Netflix and Disney Plus — the former of which is a mainstay service and the latter of which is an economic-friendly choice for families.
Kilar, who also co-founded Vessel, a video platform that was purchased and shut down by Verizon a year after launch, knows the space and the struggles that come with it. At the end of his 2011 blog, Kilar acknowledged that people might think he and his team were crazy to think they could “actually re-invent television and compete effectively against a landscape of distribution giants like cable companies, satellite companies, and huge online companies.”
Now, those companies are trying to compete with the streaming platform he helped build almost a decade ago, and AT&T is hoping he can do for them what he did for Hulu.