DIS Walt Disney Co

By Drew FitzGerald and Joe Flint 

AT&T Inc. played it safe with its new streaming service HBO Max by selling it for $14.99 a month, the same price it currently offers for HBO, and making it free for current HBO customers.

The online service, which will launch next May, is essentially a supersize version of HBO. Besides HBO programs, it will have hit shows and movies from the Warner Bros. library as well as new content including shows from prolific TV producer Greg Berlanti and actress-producer Mindy Kaling.

It will enter an increasingly crowded marketplace where a basic Netflix Inc. subscription costs $12.99 a month and where Apple Inc. and Walt Disney Co. are launching video services that will carry much lower monthly fees.

AT&T was initially considering charging more than $15 a month as it looked to capitalize on the media properties it bought with Time Warner, people familiar with the matter said several months ago. In a recent interview, AT&T Chief Operating Officer John Stankey said, "Higher quality should warrant a slightly higher price."

However, Disney's decision to offer its streaming service at a $6.99 monthly price and the $4.99 monthly fee for Apple's TV+ platform may have made it challenging for HBO Max to charge a fee significantly higher than HBO.

Besides being free for existing HBO subscribers, it will also be offered for free to premium AT&T wireless and broadband customers. 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," AT&T finance chief John Stephens said, 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. Apple is making its service free for a year to buyers of its latest iPhones, while Disney will give its service free for a year to some Verizon wireless customers.

"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. The company for now will keep running HBO Now, which won't include all the new programming, for the same $14.99 monthly price.

HBO has about 35 million U.S. subscribers, while HBO Now has about 8 million, according to a person familiar with the matter.

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."

On Tuesday, executives said HBO Max had secured exclusive streaming rights for "South Park," an animated hit from Viacom Inc.'s Comedy Central. 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 23:29 ET (03:29 GMT)

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