Why AT&T is betting the farm on HBO Max

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WarnerMedia’s wild bet — risky ⚠️

Last week, WarnerMedia announced they’ll stream every movie they release in 2021 on HBO Max — the same day they’re released in theaters.
This includes Dune, Matrix 4, Suicide Squad, Space Jam: A New Legacy, Godzilla vs. Kong, Mortal Kombat, and more.
This move comes just weeks after WarnerMedia announced that Wonder Woman 1984 would be released on HBO Max.

First, let’s be clear: this is a wild bet.
WarnerMedia is fully reliant on box office revenue, and analysts predict this move will cannibalize up to $1.2 billion, and perhaps 50% of their domestic theatrical audience.
(Not to mention any additional long-term damage caused to their business by pissing off theaters and talent.)
So, why such a desperate move?
AT&T, WarnerMedia’s new parent company, is facing massively declining cable subscriptions, DirecTV customers, and movie ticket sales. Plus, COVID. So they decided to not let the crisis go to waste.
There are broadly two paths WarnerMedia could have followed:
1) Allow HBO to continue as a high-end brand that distributes through many channels (cable, Amazon, etc), while Warner Bros and Turner suffer.
2) Combine HBO, Turner, and Warner Bros into a Netflix competitor
The first option would have some brand power, but would be a small business, and vulnerable to competition. So AT&T went with the second route.
First, they hired the former CEO of Hulo to be the CEO of WarnerMedia. That was already a strong signal of the plan. Now, they’ve made their boldest bet yet.

There’s a couple obvious and less-obvious ways this will drive HBO Max subscribers:
People want to watch these movies, but don’t want to go to theaters during COVID, so they will subscribe.
By having more “must watch” content, HBO Max improves their negotiating position with Roku, so maybe they’ll finally strike a deal at a lower cost for WarnerMedia.
As Peter Kafka noted: “Until today, HBO Max didn’t have a brand beyond ‘HBO plus other random stuff’. Now it most definitely has a real brand that makes sense to real people: Big movies in your house, no waiting.”
On the other hand, they have a pretty huge hill to climb. Analysts estimatethey’ll need to attract 8.4 million new subs to make up for next year’s projected revenue shortfall.
(That’s roughly double their current subscriber base.)
My sense is that if any one of their 2021 movies are a massive hit, the bet could easily pay off.
But hits are not guaranteed. In 2019 Warner only created 1 of the 9 films that exceeded $1b in box office receipts. It was Joker. The other 7 belonged to Disney.