Last year, Disney (DIS) showed just how hungry/desperate it was to make up for lost time in the streaming wars by pricing Disney Plus very aggressively, while also baking in things such as support for 4K HDR streams and support for four concurrent streams per account.Now, in its own way, AT&T's ( T) WarnerMedia unit is showing some hunger and desperation of its own. But it's still not clear whether they truly have enough of it.
As some readers probably know, WarnerMedia sent shockwaves through the media industry on Thursday by announcing that its entire 2021 Warner Bros. movie slate will be released simultaneously on its HBO Max service and in movie theaters. The slate includes Matrix, Space Jam, Suicide Squad, Sopranos, Dune and Mortal Kombat films, and even a few titles that don't involve existing franchises.
Two important caveats:
- The movies will initially be available on HBO Max for only 31 days, after which they'll only play in theaters for a period of time before returning to HBO Max.
- HBO execs suggest their current plan is to go back to giving theaters an exclusive release window in 2022, as COVID's impact on theater trips begins fading away.
Of course, judging by how the shares of movie theater owners AMC Entertainment (AMC) and Cinemark Holdings (CNK) (already trading well below February levels due to COVID) plunged on the news, markets seem to have their doubts about whether HBO's strategy change will be so short-lived.
And a quick look at streaming subscriber numbers shows why HBO arguably has an incentive to make new Warner Bros. immediately available on HBO Max long-term.
AT&T reported having 28.7 million customers who were eligible to receive HBO Max as of the end of Q3. However, only 12.7 million had activated their subscriptions to HBO Max, which launched in the U.S. and Canada in May.
In addition, 25.1 million of the 28.7 million eligible customers had access to HBO Max on account of subscribing to HBO through their pay-TV providers. A mere 3.6 million subs had directly signed up for the service in its first 4-plus months of availability. (I wasn't exactly shocked by this figure, to be honest)
For comparison, Disney reported having 73.7 million Disney Plus subs globally as of Oct. 3. It also claimed 36.6 million subs for Hulu, which is only available in the U.S..
Netflix (NFLX) reported having 73.1 million paid subs in the U.S. and Canada at the end of Q3, and 195.2 million globally. And though not all of them are using Prime Video, Amazon.com (AMZN) reported having more than 150 million Prime members globally back in January.
A lack of support for Roku's (ROKU) platform and (until recently) Amazon's Fire TV platform has undoubtedly hurt sign-ups. But HBO Max's $15-per-month pricing -- more than twice Disney Plus' $7-per-month/$70-per-year pricing, and also more expensive than Netflix's Standard plan and the per-month cost of an Amazon Prime subscription -- seems to be a bigger issue.
While HBO Max can sell consumers on a large content library filled with hit HBO series', Warner Bros. films and a slew of popular non-HBO TV shows, its price still makes it a tough sell for many at a time when a majority of U.S. households appear to have access to at least two subscription streaming services, and (following Disney Plus' rapid growth, as well as Apple TV+'s arrival) quite a few appear to have access to three or more.
What's more, if AT&T was to go the Disney route and use rock-bottom pricing to drive HBO Max sign-ups, it would cannibalize the billions in annual revenue it generates from HBO pay-TV subscriptions.
As a result, AT&T has decided to temporarily cannibalize Warner Bros. movie theater revenue to drive HBO Max sign-ups instead, wagering that the financial hit will be less than in non-COVID-affected times and that most of the consumers who sign up for the service to get first-day access to 2021 Warner Bros. releases will hang around in 2022 and beyond, even as first-day access goes away.
The first wager carries a little risk, given that theaters might start filling up again in the second half of 2021 as COVID vaccines become widely available. But regardless of the first wager's outcome, the second wager carries a lot of risk, given the competitive environment that HBO Max faces.
To paraphrase a Breaking Bad character, AT&T and WarnerMedia are betting that a half-measure will be good enough to put HBO Max on solid long-term footing against Netflix, Disney and Amazon, when a full-measure is probably needed. At least in the absence of a major price cut that would cannibalize a large, existing, revenue stream.
But with that said, 2022 is still a long ways away. And it's not hard to imagine AT&T's brass going for a full-measure before 2021 ends. Certainly, many AMC and Cinemark investors seem to think they might.