An industry veteran tapped to lead the WarnerMedia division of AT&T initially opposed a partnership with cable and satellite companies that would allow HBO subscribers on those platforms to access AT&T’s new blockbuster streaming service HBO Max, according to a report.
Last week, Silicon Valley’s digital insider publication The Information published a lengthy profile of Jason Kilar, the former chief executive officer of Disney-owned streaming service Hulu and a once-prominent board member of the animation studio DreamWorks Pictures. Kilar was hired in May to serve as the chief executive officer of AT&T’s WarnerMedia division, a subsidiary operation that includes prominent household brands like Warner Bros. Studios, CNN and HBO.
Kilar arrived at AT&T weeks before his official start date and with less than a month to go before the launch of HBO Max, a blockbuster streaming service that incorporates HBO original programming and licensed movies with TV shows and movies from other content studios and distributors owned by the telephone company.
Right from the start, Kilar told WarnerMedia staffers that the future of the pay television industry relied on a direct-to-consumer relationship with viewers using online-based services — a similar business model that had proven successful over the years at Netflix, Amazon and his old employer Hulu.
WarnerMedia’s former parent company, Time Warner, had found some success with that business model, too, launching a standalone service of HBO that offered online access to the network’s programming over the Internet without a cable subscription. The service, HBO Now, was an ambitious experiment to see if consumers would pay $15 a month for premium cable programming — and Time Warner pulled it off.
Prior to Kilar arriving in the spring, AT&T had spent more than a year crafting HBO Max as a service that could be accessed by those who subscribed to HBO through their cable provider or who paid for online access to HBO some other way. WarnerMedia employees were still trying to iron out deals with cable companies and other HBO providers when Kilar issued his staff-wide that seemed to suggest AT&T and HBO could thrive without cable partners.
That email “ruffled feathers” within WarnerMedia, according to Jessica Toonkel, a reporter at The Information who wrote Kilar’s profile. (The Desk does not subscribe to The Information, which charges readers $400 a year and places the bulk of its exclusive reporting behind a hard paywall. Instead, The Desk relied on two copies of the same article sent by two separate readers, including one with a direct connection to the publication.)
“Some employees interpreted his comments as suggesting WarnerMedia shouldn’t rely on cable and satellite operators,” Toonkel wrote, “a particular issue for those whose job it is to arrange distribution agreements with those companies, according to employees.”
Nevertheless, when HBO Max launched, it allowed around 33 million paying cable subscribers to access the service, including the entirety of its extended library of shows and movies sourced from other WarnerMedia catalogs (and, in a few cases, licensed from third-party content providers like South Park Studios and the BBC).
The decision to allow cable customers to access HBO Max content was intended to placate cable companies who might have been upset that AT&T had decided “to use the valuable HBO name for the streaming service,” Toonkin reported.
— Jessica Toonkel (@jtoonkel) July 1, 2020
But the company has still missed subscriber targets due to two issues: Some cable customers who pay for HBO and are eligible for HBO Max aren’t using the service. The reason is likely due to a lack of effort by AT&T and WarnerMedia to educate cable customers that they are eligible to use HBO Max as part of their traditional HBO subscription.
Kilar has become personally involved in negotiations between AT&T and the two streaming platforms — discussions that continue to this day. But at least one company, Amazon, is holding out, according to Toonkin’s story.
That’s because Amazon had — and still has — an agreement with AT&T to distribute HBO original programming and licensed movies natively through its Prime Video Channels at a price of $15 a month before HBO Max was announced. As part of the arrangement, HBO was able to add more subscribers, and Amazon was able to take a cut of the subscription revenue — anywhere from 20 percent to 50 percent, Toonkin wrote.
Amazon wants to keep that arrangement in place while offering customers who subscribe to HBO through Prime Video Channels access to HBO Max, Toonkin said, an arrangement AT&T isn’t crazy about. (Negotiations between AT&T and Amazon were first reported in May by the Wall Street Journal’s media industry journalist Joe Flint).
More than a month after HBO Max launched, AT&T and Amazon still have yet to reach an agreement that would bring the expanded streaming service to Fire TV users.
Toonkin’s story didn’t discuss negotiations between AT&T and Roku, but The Desk reported last week that the stalemate is largely based on those same issues — Roku had a similar arrangement to offer HBO content natively through the Roku Channel and wants to keep that deal in place while offering subscribers access to HBO Max, while AT&T wants to see the terms change, according to a source who spoke with The Desk.
During those negotiations, AT&T offered to compromise with Roku: Customers who subscribed to HBO through the Roku Channel would get access to HBO Max, but only if Roku agreed to lower its commission for HBO subscriptions from 30 percent to around 15 percent, according to a source. Roku declined AT&T’s offer, the source said.
As with Amazon, Roku users — including those who pay AT&T directly for HBO Max or subscribe to HBO via an eligible cable partner — still don’t have access to the HBO Max app.
But Kilar’s dogged efforts have earned him and AT&T victories in other areas. Less than 24 hours before HBO Max was set to launch, Kilar successfully negotiated digital streaming rights for all eight “Harry Potter” movies to appear on the service. The deal was the result of several late-night phone calls with his counterparts at Comcast’s NBCUniversal, which had secured the exclusive television and digital rights to the Warner Bros.-produced movies through 2025, Toonkin wrote.
The availability of the movies came as a surprise to ordinary consumers and industry analysts alike, particularly in the wake of several media reports that explicitly said the films wouldn’t be on HBO Max due to that pre-existing agreement between AT&T and Comcast.
Comcast now finds itself in a precarious and similar situation with Roku and Amazon: Its direct-to-consumer streaming service Peacock, which was soft-launched to Comcast television and internet subscribers in April, is slated for a public rollout on July 15. Like AT&T, Comcast doesn’t have agreements in place with Roku and Amazon.
A source said the issue between Comcast and Roku is largely focused in two areas: Data collection and advertisements. Roku currently inserts a small handful of its own commercials on streaming services that are supported by advertisements, the source said, and the company wants to do the same with two of Peacock’s three subscription tiers, both of which contain commercial advertisements.
To support its advertisement efforts, Roku wants to collect a copious amount of viewership data from users of the streaming app, the source said. That arrangement isn’t too far off from similar deals made with advertisement-supported services, including ViacomCBS-owned Pluto TV and Fox Corporation-owned Tubi TV. Comcast has expressed a willingness to provide a limited amount of customer data, but has resisted efforts to allow Roku to insert advertisements during Peacock shows and movies, the source said.
As of last week, a Comcast executive told The Desk negotiations with Roku and Amazon are continuing over the availability of Peacock, but declined to provide specific information about the discussions. Officials from AT&T, Amazon and Roku have not returned separate requests for comment.
Correction: An earlier version of this article erroneously said The Information’s profile on Jason Kilar was published this week. It was published online last week.