HBO Max. The Dilemma Unpacked

HBO Max’s decision to (temporarily) pull Gone With The Wind has once again thrust the service into the news and reminded many consumers that they still have no idea what’s going on with Max, and why they can't seem to find it on their Roku or Fire TV devices.

How they got to that position is a complicated story that highlights many of the challenges media companies face is launching an SVOD service. So here's a review on why AT&T wound up in the place it’s at, and why something that seemed like it should be a slam dunk turned out to be an air ball.

To start, we need to go back to the early days of OTT.

HBO, which was still owned by Warner Media at the time, realized that it needed to provide some sort of OTT outlet for its customers, both as a customer service perk and because digital delivery or “OTT” was starting to become a thing and doing so would enhance their image as a progressive forward-thinking company.

But, since HBO’s customers all subscribed via their MVPDs, launching a separate direct-to-consumer service did not make sense.

At least not yet.

Hence, HBO Go, which launched in 2010 and was only available to viewers who subscribed to HBO via their MVPDs. 

Go had some stability issues (long story) and took a while to take off (dial-up broadband was not uncommon in 2010) but eventually managed to get some traction once viewers realized it was an easy way to binge HBO shows without having to navigate the murky waters of the MVPDs VOD menus. 

Fast-forward to 2015. 

Most observers still did not expect HBO to launch a direct-to-consumer OTT service for two big reasons: (a) they would not want to risk angering the MVPDs who supplied them with close to 40 million subscribers and (b) they had never sold anything directly to consumers before and thus lacked the necessary internal infrastructure to do so.

But launch they did and HBO Now was born.

The service was originally only available via Apple, thus taking care of the “how are we going to collect all that subscription money” part of the equation. (This becomes important later on, so mental note.)

Viewers never fully understood the difference between HBO Now and HBO Go or why there were two different HBO apps to begin with, but both apps managed to keep growing and by 2020, Now had almost 8 million subscribers, many (if not most) of whom subscribed via Apple, Roku and Amazon or via vMVPDs like Hulu Live TV. 

For your average viewer, subscribing via a service that already had their name and credit card number and whose log-in and password they already knew was clearly a much easier option than starting the whole thing from scratch.

So all was well and good in HBO-land, but in 2018, AT&T finally got the go-ahead to buy Warner Media, after which they announced plans to launch a Flix that rolled up HBO with other Warner Media properties like TNT, TBS and CNN...and greatly expanded the number of originals on HBO so that the offering would appeal to a wider range of people.

The wisdom of that move was widely debated: how would expansion affect the popular HBO brand and what would be unique and "HBO-like" about the additional programming AT&T was proposing?

And then one of the initial announcements about the new product laid out a very confusing three-tier plan for the new service of the sort that only a former phone company could come up with. Fortunately, cooler heads prevailed, a key executive (Bob Greenblatt) with years of actual TV experience was brought in to run things and fingers were taken off the panic button.

AT&T took back Friends and other popular Warner Brothers series from Netflix, began production on a slew of new series for the new app, which would be called HBO Max, set a May 2020 launch date and all seemed well and good.

If only it were that simple.

Because in order to launch Max and not lose the 35 million plus people who subscribe to HBO via their MVPDs, AT&T needed to strike some sort of deal with the cable companies to give their subscribers Go-like access to the app, which was tricky, as AT&T was getting rid of the two app system (Go and Now) and putting everyone onto Max which meant that cable customers would be using the same app as their cord cutting cousins. 

Convincing the MVPDs took some doing--Comcast only came on board the day prior to launch--but AT&T was able to get all the major MVPDs on board.

At which point they needed to pull off the same trick for their 8 million exisitng Now subscribers, and there, as the saying goes, their troubles began.

Let’s pull out that factoid I told you to take note of before, that many (if not most) Now subscribers got their subscriptions via Amazon and Roku, both of which maintain something called a “Channel Store.”

Meaning that if you get your HBO subscription via Amazon, the HBO shows get integrated into the main Amazon Prime service and can be accessed via the Amazon Prime app as if they were Amazon Prime shows, and if you get your subscription via Roku, you can similarly access HBO shows from inside the Roku Channel, their free ad-supported streaming TV service (FAST.)

Now you could also use the standalone HBO Now app on both services and while I have yet to see stats on how many people do that versus going through the Prime or Roku Channel apps, I am told that the number of people accessing through the channel stores is significantly higher.

Unfortunately the negotiations, which centered around AT&T's demand that Roku and Amazon no longer offer Max as a channel store option, but rather, exclusively as as freestanding app a la Netflix, came to a grinding halt, and have remained at a grinding halt ever since. 

In practical terms this means that the HBO Max app is unavailable on both devices, as in it doesn’t even show up in their respective app store menus, so that even if you are a Comcast subscriber and have access to Max, or a potential new subscriber, you will not be able to download Max to your Roku or Amazon device. 

And Roku and Amazon devices are the main ways that US viewers watch OTT.

Which leaves Apple.

Now on a good day, Apple TV (which is priced at 6X Roku and Amazon’s devices) controls around 15% of the streaming device market. 

So not a whole lot of potential downloaders.

To make matters worse, HBO automatically updated the Now and Go apps on iOS devices to the new Max app. So you could see what it looked like on your phone and what it had to offer, but you couldn’t easily watch it on your TV. 

And if all that wasn’t enough, if you were one of the millions of users who subscribed to Now via Roku or Amazon, when you tried to open the new Max app on your phone, all you got was a pop-up telling you “Sorry Chief! You have the wrong kind of subscription. No can do, big guy!” and that was that. 

Which you were likely to blame on HBO because if you’re on your iPhone, it’s a whole lot of steps to lay the blame on Roku or Amazon.

So what happened? Why was AT&T unwilling to compromise, even though not compromising seemed to to work to their detriment and then some.

The answer is sort of complicated.

In a nutshell, it was the right thing to do, but the wrong time to do it.

If you’re AT&T, you want to own the viewer experience completely and so you want everyone watching on the standalone Max app which you’ve spent countless millions designing to ensure maximum customer satisfaction and maximum stickiness.

Beyond that, you also want all the viewership data you get from the Max app, data you don’t get if the viewer is watching Max shows via Amazon Prime or the Roku Channel. 

Then there's the fact that Amazon and Roku take a sizable chunk of the subscription fees when someone signs up through their channel stores. 

There’s also advertising, which is key, given that AT&T plans to introduce an ad-supported version of Max sometime in the next year.  

With the channel store model, AT&T would have to give up a sizable chunk of its ad revenue to Amazon and Roku (both of whom have well-developed ad sales programs). Not to mention all of the data around the effects of that advertising.

All of which is why it is clearly in AT&T's best interest to avoid any kind of channel store arrangement and have viewers subscribe to the app directly. 

But timing is everything, and through no fault of their own, HBO Max launched with the worst possible timing .

Because right now, thanks to the pandemic, AT&T has precious little of the bargaining power it had pre-pandemic.

For starters, most of the new series they were going to launch with are still under construction, including the Friends reunion special, and so there’s no real reason anyone is going to want HBO Max right now, which means Amazon and Roku will not be feeling any pressure from consumers because they don't have Max. (Now and Go are still working for those who already had them.).

Then there’s the cold harsh fact that the service costs $15/month, which seemed reasonable-ish in January, but with over 40 million unemployed and the U.S. now officially in a recession, there are not going to be nearly as much demand from new subscribers for a service that’s double or triple the cost of its many competitors. Especially when that service has very little original content.

Then there are all those existing HBO subscribers. 

They might be making noise about getting Max if there was anything on Max they wanted to see, but by this time they’ve likely caught up on all the originals they missed and the fact that they can't watch Friends reruns isn't likely to get them to fire out nasty emails to Roku and Amazon.

And then there are all those potential new subscribers, the one who can’t find the app on the two most popular streaming devices.

Which is the real problem.

Because in addition to making Max’s opening numbers look really bad, those potential new subscribers will likely just default to Disney Plus or Hulu or any of Max’s other competitors. 

You know, the ones whose apps are available on Roku and Amazon.

And there we are.

On day one, only 87,000 people downloaded HBO Max on mobile, a number lower than even the hapless Quibi service and one that’s not likely to improve for a while.

Worse still, there were a number of articles in mainstream publications with headlines like "How to tell if you're eligible for an HBO Max upgrade?" which only served to highlight how unnecessarily complicated Max was, a look that made it seem like a throwback to the bad old days when cable companies thought it was okay to put customers last.

That meant that AT&T faced a slew of bad buzz and worse PR about the launch which, in addition to making investors nervous, will make it more difficult for them to recruit the talent they need going forward. 

Which is not to say that all is lost.

At some point the service’s new shows will get completed and if the old HBO magic is still there, people will want to see those new shows and start wondering why they can’t seem to find the app on Amazon or Roku, and (this is key) if AT&T is able to successfully convey that the fault for that lies with Amazon and Roku, it may pressure one or both to come back to the negotiating table. 

Or not, given that there are seven other Flixes, eight, once ViacomCBS launches whatever it is they plan on launching, and viewers may decide that there's enough out there to watch without pressuring Roku and Amazon about Max.

One option of course is to strike a deal with just one of the devices (I'd go with Roku as they seem to have a bigger footprint.) That would give Roku a marketing advantage ("We're the only one with HBO Max") and allow many of the potential new subscribers to actually subscribe.

But mostly, as we've been banging on about for a while, it comes down to programming. If HBO Max has a couple of much buzzed about hit shows that viewers really want to watch, then they are going to be in a much much better position to negotiate.

If not, it's still advantage Amazon and Roku.