Fast Forward: HBO Max Launches with Harry Potter, But without Roku or Amazon

Let's find out why that happened, and round up the pros and cons to HBO Max’s chances in the streaming wars

Editor’s note: This is an abridged edition of our Fast Forward newsletter. For the full version, please contact our VP of Client Services, Josh Mallalieu (josh@ipglab.com) to send a request.

What Happened

On Wednesday, AT&T-owned WarnerMedia officially launched HBO Max, which serves up premium HBO content along with WarnerMedia’s deep catalog, plus some new original series, all for $14.99 per month, the same price that HBO charges for its linear channel via pay-TV providers and for its preexisting standalone streaming service, HBO Now.

Some existing HBO subscribers will gain access to HBO Max at no extra cost, giving it a strong boost in building its user base at launch. However, if you are used to watching HBO on Roku or Amazon Fire devices, you’re out of luck, as WarnerMedia has yet to strike a distribution deal with either platform to upgrade existing subscribers. That means that if you signed up for HBO Now via Roku or Amazon, you won’t be able to unlock the additional Max content elsewhere either.

This matters because Roku and Amazon are the two largest streaming platforms with a combined 70% market share, according to data from Parks Associates The fact that HBO Max is not available on either platform means that HBO is missing out on about 80 million U.S. households, per Variety’s estimates, at launch.

Why It Happened

In short, this is likely due to disputes over revenue split when customers subscribe to HBO Max via Amazon’s and Roku’s respective Channels services.

• Amazon and Roku take a cut (reportedly somewhere 30% to 50%) for any streaming subscription they resell through their Channels.
• By some estimates from 2018, Amazon Channels was responsible for about half of all HBO online subscriptions.
• WarnerMedia is likely looking to leverage the HBO brand to negotiate a lower cut, while Roku and Amazon are hoping to leverage their dominant market share in streaming devices to get WarnerMedia to accept their offers.

In addition, future advertising revenue could also be a point of contention for the parties involved.

• Although HBO Max is currently ad-free, WarnerMedia is reportedly considering adding a cheaper, ad-supported tier to HBO Max early next year.
• Both Roku and Amazon have begun to build out its own connected TV ad business, and both likely wanted to negotiate more favorable deals.

Launching HBO Max without support for Roku and Amazon devices is a “high-risk, high-reward” bet for WarnerMedia.

• HBO is signaling a level of confidence in its content that it is willing to bet that it can get some subscribers to switch their distribution channels to establish a direct billing relationship, thus saving WarnerMedia millions of dollars by bypassing the platform owners.
• Incoming AT&T CEO John Stankey acknowledged this conflict of interest, telling CNBC that “We must be doing something right if somebody believes we are now starting to be more in conflict with their business, so I don’t necessarily take that as a bad sign.”

Pros and Cons

HBO Max becomes the third major streaming service to launch during the pandemic, after Quibi and the soft launch of NBCU’s Peacock. As a late comer to the streaming wars, HBO Max comes with a unique set of pros and cons in this crowded space.

Pros for HBO Max:

• Content is king, and HBO Max arguably has the strongest content catalog out of all the recent entries in the U.S. OTT market, including all episodes of popular sitcoms Friends and The Big Bang Theory, as well as all the movies in the DC Comics, Harry Potter, and The Lord of the Rings franchises.
• Strong brand recognition matters in the age of peak content, and prestige that the HBO name carries will help it stand out in a crowded market. HBO’s built-in audience also gives HBO Max a solid foundation at launch to build on.
• It’s taking a more curated approach to content recommendations compared with rivals’ data-driven recommendations, surfacing things to watch based on themes and people.

Cons for HBO Max

• Distribution matters, and sooner or later WarnerMedia will have to reach a deal with Amazon and Roku to reach those streaming audiences. After all, it is far easier to switch apps than to upgrade your streaming device just to get HBO Max on your TV.
• At $14.99 per month, the service is more expensive than competing offerings like Netflix and Disney+. That is especially a liability given the pandemic-induced economic downturn — the New York Times reported that one in five people who subscribed to HBO Now said they planned to cancel their subscription in the coming month, compared to only 7.4% for Netflix, 8.6% for Disney+, and Amazon Prime Video’s 1.2%.
• Unlike some streaming services, HBO Max lacks a strong ecosystem to bundle with and profit from other non-content revenue streams. For the likes of Disney, Amazon, and Apple, content spending is part of the customer acquisition cost to lure and retain users in their ecosystems, and AT&T lacks the necessary components to build a similar flywheel.

What’s Next

At the end of the day, it is clear that AT&T is playing the long game. It is planning to attract 50 million subscribers by 2025, which will no doubt further propel the cord-cutting movement in the process. It is also planning to capture new audiences and drive engagement by adding live elements including sports and news. AT&T may be losing its pay TV business due to the shift in viewer behavior, but it is trying very hard to expand HBO from a premium channel to something closer to what Netflix promises — “all of TV.”

Thus concludes this edition of Fast Forward newsletter on HBO Max. If you want to learn more about the streaming wars and the changes coming to the entertainment industry, check out our blog’s special page on this topic. For a deeper dive on streaming, or custom reports tailored to your industry or your business, please reach out to Josh Mallalieu, VP of Client Services, (josh@ipglab.com) and ask to join the mailing list.