"HBO Max Isn't a Game Changer for AT&T": Analyst

HBO Max Presentation Day - H - 2020

The launch "has thus far been notably less smooth than the launch of Disney+" due to "confusing branding, uncertainty about how to get the product," and limitations on how consumers can watch it, says Evercore ISI's Vijay Jayant.

"HBO Max isn't a game changer for AT&T," Evercore ISI analyst Vijay Jayant writes in the title of a new report published on Sunday, just days after the launch of the streaming service.

"HBO Max's launch has thus far been notably less smooth than the launch of Disney+, due to a variety of factors, including confusing branding, uncertainty about how to get the product, and limitations on how consumers can actually watch the product, particularly on television," he argued. "With that said, we believe HBO Max is a good product, with a strong content lineup, a solid (but not particularly distinctive) user interface, and the backing of a highly-regarded brand."

Explaining why HBO Max isn't as a game-changer for AT&T "in the eyes of investors the same way Disney+ has been for Disney," Jayant said "content remains a relatively small portion of the AT&T business, not the core as it is with Disney, so we see little chance that investors will begin to look at AT&T on a sum-of-the-parts basis, valuing HBO Max on a per-subscriber basis, as with Disney and Disney+."

The analyst also said he remains "skeptical that there are large synergies between content and distribution." While offering HBO Max "as a lure to convince customers to take AT&T’s wireless offerings, or to upgrade to higher-tiered plans, will likely help on customer acquisition and retention to some degree, it’s not at all clear that the incremental value of that offering to customers materially exceeds the cost of providing it."

Discussing distribution partnerships that AT&T reached for HBO Max, including one unveiled with Comcast on the launch day, Jayant argued that the "difficulty in these negotiations came from [distributors'] pushback that, if AT&T was going to offer HBO Max, with roughly double the content of HBO, for $15 on a standalone basis (roughly equal to the typical price consumers pay for HBO if bought through a distributor), then that would devalue the HBO product they currently sell, and would justify a lower wholesale price for HBO, or at very least no incremental price for the HBO Max upgrade."

The Evercore ISI analyst also highlighted that HBO Max has "significant limitations for consumers who want to view it on a TV," predicting an app to become available on the Comcast Flex and X1 set-top boxes "in the relatively near future" and on Charter as well. "This means that, for the moment, customers eligible to watch HBO Max need to use a third-party streaming device to watch it on their TVs, and here the limitation lies," he said. "The HBO Max app currently isn’t available on either the Amazon Fire devices or on Roku devices, including smart TVs that run Roku software, even though the HBO Go and HBO Now apps are. Customers can use an array of devices, including Apple TV, PlayStation and Xbox game consoles, and post-2016 Samsung smart TVs."

With Fire and Roku devices accounting for more than a two-thirds share of the U.S. streaming device market though, "many customers who qualify for, and are paying for, HBO Max content currently can’t view it on their TVs," Jayant concluded. "We believe AT&T’s dispute with Amazon comes down to one thing: data. AT&T wants Fire users who open HBO Max to be essentially transferred to the HBO platform, so that HBO captures all the data about the customer’s usage, improving the ability to target ads in other parts of the WarnerMedia universe. Amazon, however, wants to keep as much of that data as possible in house." But the analyst predicted the companies will reach an agreement in time.

The Roku dispute, meanwhile, seems "primarily to center around advertising," he suggested. "While HBO Max doesn’t currently have ads, AT&T does expect to launch an ad-supported version, likely next year, and Roku will want to benefit from that advertising revenue." But Jayant concluded: "We expect this dispute to eventually be resolved, since neither AT&T nor Roku benefits from not having HBO Max available on Roku devices."