October 31, 2019 Democracy Dies in Darkness The hidden problem with HBO Max’s service plan It might need to go to war with its own partners

By Steven Zeitchik

For consumers, it felt like a sweet stream: Pay the same $15 you’re already paying for HBO, get all the additional content of HBO Max. As the AT&T-owned Warn- erMedia unveiled Tuesday, this is how the cord-cutting service will work. When it launches in May, HBO Max’s monthly price will entitle HBO subscribers to watch the network of not only “Succession" and “Sesame Street” but also originals such as a “Grease” spinoff, a Gina Ro- John Stankey, CEO of WarnerMedia, introduced HBO Max on Tuesday. driguez movie and a Ridley (Presley Ann/Getty Images via Bloomberg) Scott science fiction series, not to mention hits like “South relies heavily on outside compa- vested interest in not shifting Park” and “The Big Bang Theo- nies to deliver its programming their consumers over to HBO ry.” All for the same 15 bucks to some 30 million subscribers. Max. Why would they? They they’re already paying. Those companies, such as Com- don’t stand to take in any of the But there’s a catch — for cast, Charter and Dish, all take a dollars once it happens. HBO. chunk of revenue for providing A Comcast representative To offer such a service to its — and often promoting — and a Charter representative, the subscribers, HBO doesn’t actu- HBO. company’s two biggest cable ally have the clear field that the And that’s where the problem providers, declined to comment. presentation suggested: It has an comes in. Analysts, however, were plenty obstacle-strewn one. These are companies AT&T verbose. Outside of AT&T’s providers does not own. And they’re com- “The existing [traditional] and the HBO Now service, HBO panies that decidedly have a subscribers — do you need to go back and reopen their current … An FAQ on HBO Max’s site “WarnerMedia is caught be- agreements?" John Hodulik of played things equally close to tween a rock and a hard place,” UBS asked executives after the the vest. veteran L.A.-based investment presentation. “If you subscribe to HBO banker Lloyd Greif said. “It’s a “So I sign up for HBO Max through a cable or TV provider, highly competitive space, and on Comcast or Charter’s Spec- stay tuned for more details as we it’s not called the streaming trum … How does that sausage get closer to our launch date,” it wars for nothing.” all work?” queried Rich Green- offered to the question of what Greif predicted greater ten- field of LightShed Partners. happens if you subscribe sion between HBO and its part- The theme they’re hitting on: through a non-AT&T provider. ners as a result. Sure, all these conversions are So how would this seemingly “Yes, AT&T is throwing its not a problem when it comes to unresolvable stalemate play out? [providers] under the bus," he the subscribers of DirecTV, In one scenario, HBO would said. And "since AT&T doesn’t which AT&T owns, or HBO have to pay a high sum for these have their back, they will have Now. HBO will let them switch providers to facilitate an HBO to cover their own.” right away; the money’s going Max transition — something This all points to a larger into the same corporate coffer. WarnerMedia would almost cer- streaming wars issue for the leg- But what about everyone tainly not want to do for a ser- acy companies seeking to do else? How does HBO move vice whose contents costs are battle. A firm such as Warner- them over, and why would those already well over $1 billion with Media wants to reach consumers companies help them do it? An no timeline for profitability. The directly — there are, after all, executive at one provider whole point of streaming is to numerous financial and market- laughed when the question of reduce the payout to distributors ing advantages, and Wall Street such assistance was posed. If and shift the dollars in-house. loves it. anything, they would have mo- In another scenario, HBO But HBO still does business tive to stop subscribers from would go to war with its own with traditional distributors — shifting to HBO Max — such a distributors — that is, target tens of millions of subscribers’ switch is money directly out of people currently paying Com- worth of business. their pockets. And that puts cast or Spectrum for HBO and That means that a company is HBO, which needs these compa- woo them away. Not exactly trying to get into distribution at nies to get aboard or at least out ideal either, given that for the the same time it still needs dis- of the way, in a tough spot. foreseeable future it’s still get- tributors. HBO sought to downplay ting tens of millions of subscrib- “We’re optimistic and hope- these concerns. ers through these companies. ful we’ll open up the deals and “We are in active discussions In yet another scenario, HBO be able to do something proac- with our distributors. The intent could raise the price of Max for tively,” Stankey said Tuesday, is indeed to get these existing 30 non-AT&T customers so there’s speaking of the distributor rela- -plus million consumers access enough money to go around to tionships. Then he cautioned, to HBO Max as quickly as we the Charters and Comcasts of “Obviously it takes two parties possibly can,” said Tony Gon- the world, too. That’s also pretty to [make a change].” calves of Warner subsidiary Ot- unpalatable, given that HBO And one of those parties may ter Media, who has been tasked Max is already priced higher be wondering why it should. with the effort. than every other large streaming service.