Apple Looks To Fix Past Mistakes, While AT&T's HBO Max Seems Destined To Repeat Them
Summary
- AT&T’s new HBO Max streaming service launched last week, joining the long list of big-name companies entering the space.
- Investors may see some similarities to when Apple entered the streaming landscape last year in terms of questions about short- and long-term viability.
- The prevailing theory is when it came to launch strategies, Apple took an overly simple approach, while AT&T’s was needlessly complicated.
- The concern with HBO Max is aside from a COVID-19-related reduced roster of originals, not all HBO subscribers will get free access and it is not available on all platforms.
- Conversely, investors will finally see Apple take steps towards fixing its streaming flaws by beefing up its bare-bones service with a significant investment in catalog content and original films.
(Image Credit: AT&T)
It really seems easy.
At least in theory, launching a streaming service sounds simple, or it did when there was only a few of them. All you really need is content, but as we’ve seen, that is not as simple to acquire (or create) as one would expect. And then, when you break it down further, you have to have a system in place to showcase that content and then a distribution system to share that content.
The point in all this is that while “content” may be king, you can make a strong argument that process is queen, and if the queen’s not happy, the king’s in trouble If you invest in Apple (NASDAQ:NASDAQ:AAPL) or AT&T (NYSE:NYSE:T), you’ve probably learned that by now - the hard way.
As AT&T’s HBO Max approaches the one-week mark, it’s become clear that like Apple+ the service will have a learning curve, but unlike Apple, which looks to have learned a new trick or two, for the moment HBO Max can’t seem to get out of its own way.
First, as always, some background.
From an investor standpoint, it has probably been nerve-wracking watching Apple and AT&T build streaming services. After all, Disney (NYSE:DIS) made it look so easy, so why couldn’t two equally innovative companies get it right from go?
Shareholders may remember Apple’s problem in all this was it tried to keep it simple - but made it really simple. Like “this can’t be all, right?” simple. The thing many people forget about Apple+ is that its secondary objective is to be a streaming service - its first to sell more Apple products to consumers.
Once you remember that, you’ll understand why its launch was so mind-numbingly straightforward. From the first awkward press conference with one celebrity after the other coming on stage to give vague overviews of their projects, to the actual launch with only a handful of shows, Apple’s goal was never to beat Netflix (NFLX), it was to fuel its other SKUs.
The problem, as Apple has now learned, is that content goes quick. It has also learned that if you launch ten shows, you’ll be lucky if one is a hit. And that’s not the fault of the C-suite giving the greenlight to these shows, it’s that there are just so many to choose from that the bar is so much higher than it used to be... and it keeps getting raised daily.
So now, a good amount of time into this experiment, Apple has begun getting restless. Its team is realizing that to keep people signed up after the millions of free trials are up, they need more content. That’s why in the past few weeks, investors have seen a number of things happening.
First, it was reported that Apple has begun making inquiries into buying content to boost its roster. Then you saw it buy Greyhound from Sony (SNE), signaling its entry into the world of film. As if that wasn’t enough of a flare going up that change was afoot, Apple then teamed with Paramount (VIAC) to produce the next film from Martin Scorsese.
A far cry from “simple,” right?
Altogether, it is getting pricey, and fast. Alone, the new Scorsese film, Killers of the Flower Moon, has an estimated $180 million price tag, and that got Paramount spooked (understandably). The studio realized it needed a partner, and Apple won out - including over Netflix.
Under the terms of the deal, Paramount will give it a proper theatrical release, and then Apple will house the film on its streaming service. Of course, this is a full 360-degree turn from the case of The Irishman, which had to bypass theaters completely due to Netflix’s “day-and-date” mandate.
And don’t for a second think that film being blanked by the Oscars wasn’t on everyone’s mind when choosing its dance partner. You don’t take a Scorsese film with Leonardo DiCaprio and Robert DeNiro attached and not have dreams of a gold rush during award season. In fact, many analysts and insiders have theorized awards prestige is the main reason why Paramount would give up such a high return to keep the film in its roster.
However you want to spin it - this is Apple’s new normal, and it’s bigger, bolder, pricier and could actually work.
And then there’s HBO Max.
I love HBO. I always have - to me, “prestige TV” starts and ends with the network. Watching them battle Netflix for supremacy and come out on top (for now) has been fascinating. It many ways, it is a real-life Succession.
Honestly though, I have no idea how AT&T messed up its streaming service launch so badly. After seeing the HBO Now and HBO Go and HBO proper confusion of a few years ago, you’d think the team would have realized "simple" should have been the goal. Instead, here we are, a week in, and the majority of HBO subscribers either have no idea if they get the new service for free or have no idea how to get it, period. That’s also not even touching on its content.
We knew the launch was going to be more muted. The COVID-19 pandemic has crippled productions and delayed numerous projects. That, of course, is not something you can blame AT&T’s divisions for - they had no idea they’d have to account for that.
The entire problem is that with those projects coming off the board (and licensing deals for some of its own IP not fully sorted out), it means substantially less content on the service and exposes a glaring problem - the price.
HBO Max will cost around $15 a month, not unlike HBO proper. That, on its own, is not a big deal and was expected, but the assumption was that since HBO Max offers the same titles as HBO, AT&T would make HBO Max a free add-on for those who subscribe to HBO.
Not so.
AT&T is doing exactly what was feared by those who opposed the merger with Time Warner in the first place... it’s giving its subscribers the better deal. AT&T, at present, is largely only giving HBO Max for free to HBO subscribers who subscribe through some aspect of AT&T. All others will get (for now) a limited trial/discount of some kind, and it is still not really clear on the long-term plan.
And then, there’s the new wrinkle about AT&T not counting HBO Max towards data caps for customers - which again ties back to the concerns raised about the merger in the first place.
On top of that, AT&T has somehow managed to pick a fight with both Roku (ROKU) and Amazon (AMZN), so HBO Max at launch will be on neither platform. For someone like me, that only uses Roku and Amazon Fire, the absence of those viewing options, plus the lack of new content, makes me in no rush to decode the puzzle of whether I get it for free.
If Apple made things too simple, HBO Max made them too complex.
You know who made it “just right?” Disney.
The company nailed it - simple messaging, affordable pricing and a strong array of content that has stood the test of time for decades. While this is an analysis for another day, I do want to stress that I don’t buy into the Disney bears who think the streaming service is starved for content.
You aren’t buying Disney+ because of the new content, you are buying it for the catalog content. Yes, things like The Mandalorian and new first-run films certainly help, but Disney has, and will always be, an asset because of its library.
I’m also not saying Disney as a company doesn’t have some serious issues of its own to work through right now, but to me, its streaming service is not one of them... and that’s the point.
Apple has seen the error of its ways, and it is making great strides to course-correct. AT&T ultimately knows it bungled HBO Max’s launch, but it also knows (as do savvy investors) that in a year or two, the kinks should be worked out.
Still, we have to focus on the short term - which, thanks to COVID-19, matters more than ever - and investors are going to have make a choice about which media company they want to ride the storm out with for the time being.
For AT&T and its multiple divisions - which, as a result of the merger, now include a ton of entertainment companies - they're going to be in a harder position to succeed.
Simply put, it should not have been in this position, as the company had road map upon road map to follow from other successful streamers. Yet, somehow, it seemingly just picked some of the worse parts for its campaign.
Again, in the long run, I think the service finds its footing and goes right back to the level of success we expected prior, but for now, the growing pains combined with the COVID-19 landscape make it a riskier bet that many analysts have said at present is not the game-changer it could have been.
For Apple, it just sent a big warning shot to Netflix and others that it’s ready to play a bigger game, and with a bank account to match its swagger, business just picked up.
This article was written by
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Comments (73)
They will buy Discovery.
To become the Netflix of unscripted TV.
Discovery is about to buy 50% of Lionsgate this year or in 2021.
This will put Apple right back on the same level as Netflix.
Unscripted TV costs around one tenth of the cost compared to scripted.
Discovery owns all of their IP.
Produces 3.1 billion free cash flow.
Buying Discovery will cost them between 30 or 40 billion.
Apple can pay that.
Amazon has cash reserves of around 55 billion, they will not spend that one company. Netflix,Disney or T cannot afford that financially.Apple buying Discovery (incl 50% of Lionsgate/Starz) will put them right back on the same place as Netflix....
Innovation is low and eventually they will die out with the wrong move. Phones should be cheaper not more expensive, basically they have to make phones that are cheap and rely on software to get revenue, under $300. Se was the right move but it's too small screen.. That's the future of aapl.
Waiting to see how bad Q2 will be probably a lot worse than they though.
www.fool.com/...
I suspect AT&T must 'pay-up' (i.e. share ad revenue) to be on the Roku and Amazon platforms.3) Here's a 'must read' article suggesting AT&T may provide a significant advantage to Max subscribers (the topic was mentioned, but dismissed, in the DoJ anti-trust case).
www.fool.com/... Max is very slow out of the gate, which I suspect represents a textbook case study 'marketing failure'. Nonetheless, the race is long, and it's too soon to decide Max's failure or success in attracting subscribers. No new streaming service will challenge Netflix for a very long time. AT&T shareholders will need at least 3 or 4 months to get a handle on Max's competitive position (#2, #3, #4?). More important, we won't know Max's impact on T's earnings before the 3rd quarter earnings report (about Oct. 22nd). I'm neither adding nor subtracting T shares.Rich-untrack:12hrs
It was launched light on content, but also inexpensive, and benefited from much positive publicity buzz. Most important, Apple (and Disney) are quite different and much faster growing companies compared to AT&T. Readers will recall Apple and Disney announced last year they are prepared for Apple TV and Disney+ to lose $5 billion/yr for up to 5-years, as they invest in original content and build their streaming services. Apple and Disney have much deeper pockets compared to AT&T, and don't carry AT&T's heavy debt load. (AT&T's Interest Coverage Ratio is 3.3; Apple's is 21.9; and Disney's is 5.3).
Losses! Why so many wish loading up on money loosing service is the way to go?
Netflix is spending billions that they don’t have and have to go to lenders .
Cash flow is not the same as free cash flow! One has it and the other does not!
Some streaming deals have not been negotiated because one Wants the money !
and one has it ,the other needs to borrow...
Not to worry a deal will come together because AT&T is not desperate and will agree
To a deal when it makes sense
No, mine is fine.