HBO Max Paves The Way for SVOD Market Shake-Up

June 15, 2020

Greg Sigel

VP – Partnerships

The launch of HBO Max is bringing new competition to the streaming subscription video on demand (SVOD) market in the US. WarnerMedia has been a leading media powerhouse with an enviable brand and content repertoire in the linear television world. And now the media giant is preparing to combine SVOD with traditional linear TV provision through an integrated digital platform.

WarnerMedia itself is owned by US telco AT&T after its US$109bn acquisition in 2018, with up to 10m existing subscribers already paying for AT&T’s premium video, mobile and fixed broadband bundles, including HBO Go – the linear version of Max which is likely to be sunset upon the launch of the streaming service. And it will be further supplemented by a distribution deal with Verizon that again allows the US telco’s Fios TV and Fios Internet customers to buy the streaming service direct from Verizon via DCB.

For the moment HBO Max is available only in the US through a downloadable app which runs on Apple iOS and Google Android mobile devices, Microsoft Xbox One and Sony Playstation 4 gaming consoles, as well as a select line up of smart TVs and set-top boxes (STBs) provided by cable TV operators including Comcast. At the launch at least, HBO Max was not available on Roku and Amazon Fire TV devices which are estimated to account of 70% of the install base of all streaming devices in the US. Those subscribers will continue to experience HBO by way of “HBO Now”.

Additional client device partnerships are expected to materialise over the course of the year. At the same time, localised versions of HBO Max in Latin American and European countries where HBO already operates premium TV and streaming services are scheduled for launch in 2021 (see Streaming Video Demand on the Rise in Latin America that we wrote recently). In the meantime though, much of HBO Max’s success may rely on how many smartphone apps it reaches via AT&T and Verizon’s phone packages and direct payment mechanisms.

Strong content, confusing branding

Max is now just one of three streaming services offered by HBO, with HBO Go already included with subscriptions to cable and TV packages and HBO Now available via the web or smartphone app. While those two platforms both offer original HBO content including series, documentaries, specials and movies, HBO Max trumps them with 10,000 hours of premium content. That includes DC, Harry Potter and Studio Ghibli Japanese animation, as well as all episodes of everybody’s favourite rerun – Friends – which was taken down from Netflix at the end of 2019 after WarnerMedia paid a reported US$425m for rights to screen it exclusively over the next five years.

HBO Max will also aggregate content from subscription and pay-TV networks like CNN, TNT and CBS, as well as free to air television channels like the CW, and include original programming produced exclusively for HBO Max itself. Indeed, WarnerMedia appears to be hedging its bets that its massive back catalogue will persuade subscribers the premium price tag is worth it. With subscriptions costing US$15 a month, HBO Max certainly looks expensive next to rival platforms (Netflix costs US$9 and Disney+ US$7), though existing HBO customers get a range of discounts to bring down the fee.

With two other streaming services already available HBO Max launch may result in some confusion around branding and how it compares with HBO Go and HBO Max. That has led to predictions that it will not be as immediately successful as Disney+ since the latter’s initial launch last November which was quickly followed by expansion into India and other markets. The more family-orientated streaming service is estimated to have accrued almost 55m subscribers worldwide by the beginning of May this year, with an imminent launch in Japan in partnership with regional APAC telco NTT DOCOMO.

Those sort of numbers are unlikely to come AT&T’s way anytime soon given that initial availability of HBO Max is restricted to the US. Until it expands the service to other parts of the world, the telco will focus on using the SVOD platform to good effect in luring US customers into its fixed and mobile broadband packages.

Increased competition for Netflix

Netflix is unlikely to welcome further competition in its core US SVOD market after seeing its lead narrow over the last five years. In 2014, it was estimated to have a 90% penetration rate. But that figure dropped to 87% in 2019 according to eMarketer, primarily due to gains by Amazon Prime Video and Disney (which owns both Disney+ and Hulu).

The pressure on Netflix may increase further later this year as it is also losing “The Office” to NBCUniversal, which along with Friends were its two most popular shows in 2018 in the US according to analytics firm Jumpshot. And Comcast-owned NBCUniversal is set to launch its own OTT subscription video-on-demand service – Peacock – in July 2020. With the production of new shows and films impacted due to the pandemic, licensed content libraries for streaming services will be critical to success. On the other hand, though, movie studios that would normally release films into cinemas which could continue to remain closed in many countries for the foreseeable future may now choose to distribute content directly to SVOD providers, bringing in fresh titles being released via streaming providers.

What is more likely to put a brake on SVOD growth in the second half of this year is the much-awaited return of live sports broadcasting. Already organisers of NASCAR, MLB, NBA, NHL, NFL, MLS and NCAA are deliberating returns to action while most fans are still duty-bound to stay at home and watch games on TV. NBA’s final play-offs for the season will be completed at a Disney resort in Florida, bringing in much-needed impetus to ESPN’s linear service, also owned by Disney. While cable subscriptions are often expensive, they have proved irresistible to dedicated sports fans in the past which have refused to cut cords with cable operators and live pay-TV broadcasters as a result. But SVOD providers that complement their streaming video platforms with live sports coverage – such as Disney+ Hotstar in India, Sky, and Amazon Prime Video’s initial forays into Premier League soccer. NFL and tennis – could be in a much better position to thrive.

Revival of Linear TV underway?

The incursion of live sports is vital because streaming SVOD services in the US and elsewhere may be on the brink of more fundamental changes that bring traditional linear, ad-supported TV channels into the fold. AT&T chief executive John Stankey has iterated his intention to incorporate ad-supported video into WarnerMedia’s strategy while also making the platform available to other content owners in the form of revenue-share agreement. In a recent interview with Variety, Stankey has even gone as far as to say that its currently separate TV and SVOD businesses will start to “become one” over the next couple of years as HBO Max merges with AT&T TV, the live channel streaming service it launched last March as a replacement for its DirectTV satellite service which lost an estimated 4.1m customers in 2019 alone.

Other players are also mooting a combination of TV and SVOD businesses. Full details are yet to be announced, but both free and AVOD supported versions of Peacock will also be made available alongside Premium content with reduced programming line-ups. NBCUniversal is also said to be mulling the addition of linear TV channels to Peacock, much like others – Pluto TV and Xumo – have already done before it. It is also a strategy that Amazon Prime Video is rumoured to be considering for its IMDb TV service, though for the moment the latter remains as a free, ad-supported streaming video channel which is only available in the US via the IMDb website.

SVOD services have proved incredibly popular over the last decade, and are still set to grow from 949m globally in 2020 to 1.43bn by 2025 according to Strategy Analytics. Yet the two largest markets – the US and China – may already be approaching saturation, leading providers to look for growth in the rest of the world. Watch this space.

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