HBO Max Looks to Lasso Big Gains in 2021 After Stumbling Out Of The Gate

Despite tech delays, brand confusion, leadership changes and a lengthy carriage dispute with Amazon, HBO and HBO Max quietly added an impressive 4.9 million combined U.S. subscribers from the beginning of April through the end of September.

HBO Max’s two huge news items this month — launching on Amazon Fire TV devices and scheduling Wonder Woman 1984 to premiere on Christmas Day — have put the streamer on the growth track. In the third quarter of 2020, HBO and HBO Max added 1.7 million U.S. subscribers, outpacing Hulu (1.1 million), CBS All Access (900,000), Disney+ (250,000) and Netflix (200,000).

“We suspect high profile IP at no extra cost in Wonder Woman 1984 will go a long way to driving HBO Max subscribers to start using HBO Max,” LightShed Partners media analyst Rich Greenfield wrote in a recent research note, suggesting that as many as 2 million HBO Max subscribers may watch the film on Christmas Day.

After a difficult launch, storm clouds seem to be parting for HBO Max:

• Wall Street expects a carriage deal soon between HBO Max and Roku, the biggest U.S. TV platform with 40 million households and the last major holdout for HBO Max.
• HBO Max is preparing to launch on Xfinity X1 and Xfinity Flex devices, which will make the service available for millions of current HBO subscribers to activate.
• Thriller series The Flight Attendant, starring Kaley Cuoco, premieres Thanksgiving Day; it has already wowed critics and could become a breakthrough series, and the Justice League: Snyder Cut limited series will be a massive, event level premiere in early 2021.
• The content pipeline is stuffed with DC Universe originals, a Gossip Girl reboot, a Friends reunion special, a Nicki Minaj docuseries, and dozens more projects that will be exclusive to HBO Max, i.e., not on linear HBO.
• In early 2021, HBO Max is launching a cheaper, ad-supported option that will appeal to households that households that pay for streaming but have found HBO Max’s cost too steep at $15 a month.

As HBO Max hits its first big milestone this week — six months since its May 27 launch — Decider put together a deep dive into the ups and downs of parent company WarnerMedia’s two-and-a-half-year odyssey to transform HBO from a premium-cable network into a powerhouse streamer.

June 2018: HBO Would Lead the Streaming Transition

In June 2018, AT&T completed its $85 billion acquisition of Time Warner, a media company stocked with 20th-century media — a film studio (Justice League, Crazy Rich Asians), TV studio (Young Sheldon, Ted Lasso), cable networks (CNN, TBS, TNT, Adult Swim), and premium-cable networks (HBO, Cinemax) — but few successful streaming assets.

The conventional wisdom quickly settled on HBO as the vehicle for transforming Time Warner — now WarnerMedia — into a 21st-century global streamer. HBO was (and is) a respected premium-cable outlet with 140 million worldwide subscribers and had launched a TV Everywhere app (HBO Go) and direct-to-consumer app (HBO Now) on popular TV platforms like Roku and Amazon’s Fire TV.

In streaming, though, HBO was no Netflix:

• Netflix had nearly twice as many U.S. subscribers as HBO in 2018 and would soon surpass it globally.
• HBO was a cable channel you watched on Saturday and Sunday night; Netflix was a streamer you watched every night.
• HBO spent $2.5 billion on content in 2018; Netflix spent $13 billion.
• HBO was the cherry on top of your cable package; Netflix was replacing your cable package.

“We need hours a day,” WarnerMedia CEO John Stankey said at an HBO event in July 2018. “It’s not hours a week, and it’s not hours a month. We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.”

The HBO event was a private town hall conversation between Stankey and longtime HBO chief Richard Plepler, who politely tangled over HBO’s future. “We’ve got to make money at the end of the day, right?” Stankey said. “We do that,” Plepler, who oversaw about $2 billion a year in profits, responded.

October 2018: WarnerMedia Puts a Streaming Plan in Motion

In October 2018, WarnerMedia announced plans to launch a new streaming service in the fall of 2019 that would be “anchored by HBO as a lead brand,” Stankey said, and would include content from WarnerMedia’s extensive film and TV catalog and licensed content from other outlets.

“I think 2019 is going to be one of the best years for HBO in terms of programming lineup that we’ve ever seen, and we’re investing at a heavier clip to make sure that that happens,” Stankey said. “However, I don’t think HBO singularly, as its own standalone brand, will meet the needs of the scale of audience and customers that we ultimately want to address.”

WarnerMedia’s decision to launch a new service that includes HBO rather than turbo-charging HBO itself was partly intended as a bulwark for HBO’s creative autonomy and for consumers’ perception that the HBO of Game of Thrones and Last Week Tonight would continue to steer its own ship.

Launching HBO Max as a new service, though, would have crippling unintended consequences:

• HBO vs. HBO Max was confusing to consumers who already had to navigate HBO Go vs. HBO Now.
• WarnerMedia had to start new carriage negotiations with all of its existing distribution partners.
• Developing and producing content for the new streamer — but outside of HBO — required a new development and production team within WarnerMedia.
• Differentiating HBO from a new streamer that includes HBO would create pricing challenges given that HBO at $15 a month was already more expensive that its major competitors.

And that was before WarnerMedia decided to offer the service in multiple tiers.

In November 2018 — a year ahead of its planned launch — WarnerMedia outlined a three-tiered streamer to Wall Street analysts that would include (1) an inexpensive tier with movies; (2) an medium tier with HBO and more movies; and (3) a premium tier with HBO, more movies, and a TV catalog. Tellingly, Stankey also referred to the announced fall 2019 launch as a “beta test.”

That three-layer plan — which never launched — was Warner’s first acknowledgments that HBO’s high price point was complicating plans for the new streamer. If Warner offered a new service that included HBO for less than $15 a month, cable operators would revolt; if Warner didn’t offer a lower price point, the company would have a tough time growing beyond HBO’s 35 million U.S. subscribers.

In January 2019, AT&T CEO Randall Stephenson said on an earnings call with Wall Street analysts that the new streamer would be a hybrid of ad-free and ad-supported options similar to Hulu, CBS All Access and just-announced Peacock rather than a purely ad-free streamer like Netflix or, uh, HBO.

February 2019: That Was Enough for Richard Plepler

In late February 2019, HBO CEO Richard Plepler announced his resignation, and there was no mistaking why. WarnerMedia CEO John Stankey had said all the right things about HBO being a crown jewel and the centerpiece of the company, but Plepler had been relegated to middle management of something that no longer looked like HBO.

“According to people familiar with the matter, this is an issue of autonomy,” CNBC’s Alex Sherman reported. “Plepler wanted to run HBO, and WarnerMedia CEO John Stankey, an AT&T veteran, was effectively running HBO.” Variety’s Cynthia Littleton reported that the impending hiring of Bob Greenblatt to run all of WarnerMedia’s entertainment networks and the upcoming streamer had spurred the resignations of Plepler and Turner chief David Levy.

Executives often leave after mergers, NBCUniversal and Disney had already begun centralizing their leadership structures, and Netflix had always had always had a highly centralized content operation. What was different about WarnerMedia was that its CEO had no experience running a TV network or streamer and was planning to launch one worldwide in before the end of the year.

Rather than flatten its structure, though, Warner built new fiefdoms that would come to complicate its streaming plans.

• Bob Greenblatt, who had previously run Showtime and NBC Entertainment, soon joined WarnerMedia to run HBO, TNT, TBS, TruTV, and the upcoming streamer.
• Casey Bloys, who had run original content at HBO under Richard Plepler, would continue to do so under Greenblatt.
• Kevin Reilly, who had run TNT, TBS, TruTV and original programming for the upcoming streamer, would continue to do those jobs under Greenblatt.

By early 2019, WarnerMedia had essentially retained the separate HBO and Turner organizational structures — separate development teams, separate budgets, etc. — and tasked the heads of both with contributing programming to a streamer set to launch before the end of that year.

April 2019: Game of Thrones … and Then What?

In April 2019, HBO premiered the six-episode final season of Game of Thrones to questions from the Hollywood press and Wall Street analysts about whether HBO could continue churning out hits to power its transition from premium-cable network to cornerstone of a still unnamed new service. HBO had four Game of Thrones spinoffs in consideration but had not yet ordered any of them to series.

HBO’s culture was also changing. Global distribution president Bernadette Aulestia, who ran HBO Now and HBO Go, and chief revenue officer Simon Sutton were two of the many who left HBO with buyouts and much of the company’s institutional knowledge soon after CEO Richard Plepler’s resignation.

In May 2019, Wall Street analysts Craig Moffett wrote in a research note following a meeting with WarnerMedia CEO John Stankey that the upcoming streamer — still scheduled to launch in late 2019 — would be a single-tier rather than three-tiered service. Two days later, Brad Bentley was out after only six months as the GM and development lead on the new service; former Hulu CEO Andy Forssell was in as GM, and Otter Media CEO Tony Goncalves was in as development lead.

In June 2019, the Wall Street Journal reported that WarnerMedia was considering $16-$17 a month for the new streamer, a thin premium over HBO at $15 a month. Even $15 would have been high compared to Netflix, Hulu, Showtime, Starz, etc., that were all $5 a month or more cheaper.

July 2019: Where HBO Meets So Much Delay

In July 2019, WarnerMedia announced the name of the service (HBO Max), some big catalog titles (The Big Bang Theory, Pretty Little Liars), and plans for a spring 2020 launch (with no fall 2019 beta). Originally planned for fall 2019, HBO Max would now miss all of 2019 and the first half of 2020.

WarnerMedia unveiled HBO Max to Wall Street analysts in October 2019 on the same Hollywood soundstage where Warner Bros. filmed Judy Garland’s A Star Is Born and NBC’s ER. The streamer would launch in May 2020, cost $14.99 a month (the same price as HBO Now), have a 10,000-hour catalog, and premiere 38 HBO originals and 31 HBO Max originals in 2020.

The presentation did not include an announcement of what cable providers and TV platforms would carry HBO Max, and a big reason WarnerMedia scheduled the launch for six months out was to allow itself time to negotiate with cable outlets and TV platforms to carry the new service.

Warner’s initial goal of adding two million combined HBO and HBO Max subscribers in 2020 was modest given HBO Max’s impressive catalog and originals, so it’s tough to say whether the difficult negotiations to come would catch WarnerMedia by surprise or become a sign of its insistence on particular terms.

May 2020: Is It Even a Launch Without Roku or Amazon?

WarnerMedia spent the early months of 2020 announcing new shows, talent deals, and a new production nameplate called Warner Max that would make 8-10 original films a year for HBO Max, but very few carriage deals had been completed and announced before the coronavirus pandemic ground Wall Street and Hollywood to a halt in March.

In April 2020, Hulu founding CEO Jason Kilar became CEO of WarnerMedia, replacing John Stankey following his elevation CEO of parent company AT&T. Kilar oversees HBO, the Warner Bros. film and TV studios, CNN and other media assets, and his task so far has been to oversee layoffs and streamlining WarnerMedia into a more centralized media company focused on streaming.

When HBO Max launched on May 27, the distinction between subscribing to the service and being able to find it came sharply into focus. Consumers on Apple, Google Play, Samsung, Hulu, YouTube TV and many cable providers could download and subscribe to HBO Max, but the 70% of U.S. connected TVs — some 80 million U.S. households — that run on Roku or Amazon’s Fire TV could not.

WarnerMedia had decided well prior to launch that HBO Max would be a self-contained experience like Netflix rather than the aggregated experience that HBO subscribers got by subscribing through Amazon’s Fire TV, Apple’s TV app, or cable VOD services. HBO Now was a service; HBO Max is an app.

Warner, which had millions of subscribers on Roku and Amazon’s premium channels, wanted to shift those relationships from being being aggregated on TV platforms to having its own app (and its own data), and from an ad-free service to one with ad inventory it would have to share with those platforms.

Variety tech reporter Todd Spangler’s launch-day headline said it all and put it ominously: “HBO Max’s 80 Million Household Dead Spot: Why Streamer Isn’t on Roku or Amazon Fire TV.”

November 2020: Amazon Fire, Wonder Woman 1984, and 2021

In the six months following its May 27 launch, HBO Max has made mild splashes with Seth Rogen’s Max Original movie An American Pickle, Robert Zemeckis’s The Witches that was originally intended for theatrical release, and the Ridley Scott sci-fi series Raised By Wolves. The only other titles that have commanded popular and critical attention have been HBO series dramas like Perry Mason and Lovecraft Country.

HBO Max had 4.1 million U.S. activations by the end of June and 8.6 million by the end of September. WarnerMedia does not break out “activations” by HBO Max subscribers vs. HBO cable and satellite subscribers who have activated the app, but HBO Max is clearly having a positive impact.

HBO had 33.1 million U.S. subscribers at the end of March — the last quarter before the HBO Max launch — and HBO and HBO Max had 38 million combined subscribers at the end of September. That’s 4.9 million new HBO and HBO Max subscribers in the last six months, meeting WarnerMedia’s goals (see chart above) for all of 2020 and 2021.

Still, HBO Max accounts for only about one-quarter of those 38 million households, and it’s free to most of the households who have not yet activated it. I suspect the low adoption rate is largely due to the fact that 75% of U.S. connected TVs are Roku or Amazon Fire TV and that HBO Max has been unavailable on both platforms since the service started six months ago.

HBO Max’s mid-November launch on Amazon Fire TV and the Christmas Day premiere of Wonder Woman 1984 will improve WarnerMedia’s bargaining power with Roku, and HBO Max’s imminent launch on Xfinity X1 and Xfinity Flex will make the service available in millions more HBO households.

The early 2021 launch of an ad-supported version of HBO Max and the eagerly awaited Justice League: Snyder Cut will help WarnerMedia add price-conscious subscribers who have shied away from a $15-a-month subscription but may be more interested at $8 or $10 a month. (WarnerMedia has not announced pricing for the ad-supported version.)

Scott Porch writes about the TV business for Decider. He is a contributing writer for The Daily Beast and a podcast producer for Starburns Audio. You can follow him on Twitter @ScottPorch.