The move is intended to satisfy AT&T’s agreement with cable companies over HBO programming that includes various stipulations on how programming can be presented on HBO’s linear channels and supplemental streaming services.
Details of AT&T’s contract with cable companies were first reported by Silicon Valley scoop machine The Information last week. Additional details on how AT&T plans to uphold its agreement with cable companies while providing an ad-free version of HBO Max were provided by an AT&T WarnerMedia employee who spoke with The Desk on background on condition of anonymity because they feared possible retaliation for providing information to a reporter.
AT&T executives have openly discussed plans to bring a cheaper, ad-supported version of HBO Max to market for the past several months and have set a target date of 2021 to bring it to the masses. Surveys sent to consumers earlier this month and reported on by Variety indicate AT&T is considering around 2 to 4 minutes of commercial interruptions on programs distributed through the cheaper version of HBO Max.
But plans for commercials in HBO Max have bee complicated by AT&T‘s existing agreements with cable providers that forbid WarnerMedia from airing advertisements against episodes of current seasons of HBO shows, The Information reported.
Executives at AT&T are weighing various options on how they can carry out obligations in their contracts with cable companies while still bringing a cheaper version of HBO Max to market that is supported by ads, a source told The Desk. One plan the company is strongly considering involves making past seasons of HBO shows and a handful of content from other WarnerMedia libraries available to subscribers of the cheaper service.
New episodes of HBO shows would be displayed within the app, but that content would be “locked out” and viewers would be encouraged to pay more for the commercial-free version of HBO Max when they try to access those episodes, the source said.
Some executives feel the move would strike a balance between preserving their obligations with cable companies while bringing HBO and other WarnerMedia content to audiences who don’t want to pay $15 a month, the source said. Others take their hypothetical situation a step further, imagining a scenario where subscribers of the ad-free version become “hooked” on a series and are later encouraged to pay more for the commercial-free version of HBO Max.
“That’s a weird business decision,” Andrew Rosen, a former Viacom executive-turned-media analyst who produces the streaming TV research newsletter Parqor, said in a phone interview on Tuesday. “That’s a weird model. It’s not unreasonable, it’s just a weird model.”
Rosen says a cheaper version of HBO Max that doesn’t include current episodes of HBO content isn’t a good value for consumers “because you end up reducing your total addressable market for the content — and that’s the fundamental problem.”
“They need to know that someone watches the first season of Euphoria on the ad-supported service is going to convert to a paid subscriber [of HBO Max’s commercial-free tier],” Rosen said. “hey don’t know that. They don’t know a lot of things right now. With the ad-supported version, they can run a trial and try to convert those subscribers to the paid version. But I don’t know how many people like that are out there.”
Still, Rosen said, it’s an experiment worth trying. Executives at AT&T apparently feel the same way, too: Since it launched in May, HBO Max has managed to sign up just 4 million subscribers, bringing HBO’s total subscriber count to a little over 30 million when counting customers who receive HBO’s programming on cable, satellite and through third-party streaming services.
For better or worse, analysts have compared HBO’s progress to that of Disney’s streaming service Disney Plus, which managed to net 26.5 million subscribers less than two months after launching. (Some of those subscribers receive Disney Plus through a partnership with Verizon Wireless, which makes the streaming service available to most customers for free.)
Executives feel a cheaper version of HBO Max that is subsidized with commercials could bring in added revenue by attracting subscribers who are turned off by HBO’s $15 a month price tag. But that assumes subscribers will be able to access either version of the service at all: As of today, HBO Max is still unavailable on streaming TV devices manufactured by Roku and Amazon, which account for around 70 percent of streaming set-top boxes in American households.
Despite all of this, AT&T chief executive John Stankey said on Tuesday he “couldn’t be more pleased” with how HBO Max is progressing.
“I think in the context of where we started this, we’ve done incredibly well,” Stankey said.