By Drew FitzGerald and Joe Flint
AT&T Inc. said its new HBO Max service will cost $14.99 a
month and feature new shows from prolific TV producer Greg Berlanti
and actress-producer Mindy Kaling, as the company gambles it can
challenge Netflix Inc. and rivals flooding the market with cheaper
alternatives.
The online service, which will debut next May, combines HBO with
content from the vast Warner Bros. movie and TV library including
hits such as "Friends" and "The Big Bang Theory." HBO Max also is
spending heavily for streaming rights to popular shows it doesn't
own such as "South Park, " from Viacom Inc.'s Comedy Central.
The new service will be free for existing HBO subscribers, as
well as premium AT&T wireless and broadband customers. For
others, the price is the same $14.99 monthly fee WarnerMedia
already charges for HBO. If WarnerMedia had charged a lower price
for HBO Max, it would have had to lower the price of HBO to its
cable TV distributors.
Executives said they expect most customers of HBO's current
streaming service, HBO Now, to take a free upgrade as well. "We'll
convert as many as we can as quickly as we can," said AT&T
finance chief John Stephens, and with all the new content being
added, "why wouldn't they?"
The HBO Max original programming will include a new comedy
series about college roommates from Ms. Kaling, a sci-fi series
"Raised by Wolves" directed by Ridley Scott and a "Green
Lantern"-inspired series from Mr. Berlanti, known for hits like
Netflix's "You" and CW's "Riverdale." Actresses Anna Kendrick and
Kaley Cuoco also have new shows for HBO Max.
The new programs will add to an already crowded marketplace of
more than 500 original shows a year on various broadcast, cable and
streaming platforms. HBO Max will stick to HBO's usual script by
presenting shows episodically rather than dropping entire series at
once like Netflix and Amazon Prime.
"We like creating cultural impact," WarnerMedia executive Kevin
Reilly said, adding that creators like letting shows breathe
through weekly episodes that build up buzz.
AT&T executives project the new service will reach 50
million U.S. subscribers and 75 million to 90 million around the
world within five years of its launch.
It will have to overcome several hurdles from the start. Netflix
is already in 60 million homes in the U.S. and an additional 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 less than HBO
Max.
AT&T unveiled details of the new service at the Warner Bros.
studio in Burbank, Calif., Tuesday afternoon. It will enter a
crowded marketplace where a basic Netflix subscription costs $12.99
a month and Apple and Disney's new products will carry monthly fees
of $4.99 and $6.99, respectively.
"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."
An ad-supported version of HBO Max is also in the works for
2021, but the company didn't disclose what the subscriber price
would be for that version.
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. It will spend $1 billion for each of the
following two years until costs begin to subside. That comes on top
of more than $1 billion already spent on reruns like "Friends" and
"The Big Bang Theory." The five-year deal for "South Park"
streaming rights, which were sought by incumbent rights holder Hulu
and Comcast Corp.'s Peacock, was around $600 million, a person
familiar with the matter said.
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 started 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's Mr. 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.
AT&T said it is in "active discussions" with other pay-TV
distributors that bundle HBO with cable packages about marketing
the new brand. Existing HBO subscribers will be able to upgrade to
the new, content-heavy brand free.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Joe
Flint at joe.flint@wsj.com
(END) Dow Jones Newswires
October 29, 2019 21:36 ET (01:36 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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