DIS Walt Disney Co

By Drew FitzGerald and Joe Flint 

AT&T Inc. is preparing to unveil its answer to Netflix Inc., a multibillion-dollar gamble that the media and telecom giant can sell a premium streaming-video service at a time when rivals are flooding the market with cheaper alternatives.

The service, which will be called HBO Max and combine shows from the cable channel with Warner Bros. movies and TV series such as "Friends" as well as new original content, is projected by AT&T executives to reach 50 million U.S. subscribers within five years of its 2020 launch.

It will have to overcome several hurdles from the start. Netflix is already in 60 million homes in the U.S. and another 97.7 million abroad. Also, Apple Inc. and Walt Disney Co. will both launch their video services in November, giving them a head start over AT&T. What's more, those services will cost a fraction of the price of HBO Max.

Though AT&T won't unveil details of the new service until an event in Los Angeles on Tuesday afternoon, it is expected to charge more than the $12.99 monthly cost of a basic Netflix subscription and well over the $4.99 and $6.99 monthly fees, respectively, for Apple's and Disney's new products.

HBO Now, the channel's existing streaming service, currently costs $14.99 a month. Because of its deals with cable and satellite distributors, WarnerMedia can't undercut that price for HBO Max unless it lowers the HBO cost for everyone.

"You have to get the price point right so you have a lot of momentum and you have to get it profitable," said Cathy Yao , an analyst at Diamond Hill Capital Management Inc. "That's a hard problem to solve."

There is little room for error for AT&T. The company is already the country's biggest pay-TV company with more than 21 million DirecTV and fiber-optic subscribers watching its channel bundles. But cord-cutting has ravaged that industry as viewers seek cheaper and more user-friendly entertainment. AT&T has taken the brunt of the damage, with nearly three million customers lost so far this year.

HBO Max is an expensive rescue effort. The company expects to spend $2 billion next year to launch the service and stock it with new entertainment. That comes on top of the hundreds of millions spent this year on reruns like "Friends" and "The Big Bang Theory."

HBO Max's debut was delayed by an antitrust fight over AT&T's takeover of Time Warner. The $80 billion-plus acquisition was AT&T's biggest-ever deal, making the Dallas company the world's second-biggest media company practically overnight. But it had to fight a federal lawsuit launched in 2017, delaying its plans by more than a year.

Apple and Disney took advantage of the ferment in the entertainment sector early by spending billions of dollars on software and networks designed to replace traditional TV. The iPhone maker starting laying groundwork for a high-traffic content-delivery system more than five years ago, long before it started courting Hollywood producers. Disney gained tech expertise largely through acquisitions, including a $1 billion bet on BAMTech, the video streaming company launched by Major League Baseball.

AT&T didn't have full access to Time Warner until February, when it beat the government's appeal of the antitrust verdict. The company spent the months since then building a new video application using many of the same engineers who designed HBO Now, which has more than eight million subscribers.

HBO Max won't replace HBO Now, which will remain a stand-alone service for the foreseeable future. The company isn't able to do away with traditional HBO packaged with cable subscriptions, either. Adding to the confusion are AT&T TV, AT&T TV Now and AT&T Watch TV, three brands the telephone company uses to market its live channel packages.

The phone company's managers have highlighted the panoply of brands as an area for improvement. AT&T finance chief John Stephens said streamlining the company's list of video services will also help save money.

"Our future video product set will focus on two platforms: HBO Max, our subscription video on-demand service...and AT&T TV, our live-TV offering, " Mr. Stephens said Monday. He didn't mention DirecTV, the name most AT&T customers still use today.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

October 29, 2019 13:20 ET (17:20 GMT)

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