To the MAX
AT&T BANKS ON ITS SOON-TO-LAUNCH HBO MAX STREAMING SERVICE TO BE A GLOBAL ENGINE OF GROWTH FOR WARNERMEDIA
AA starry group came together for a meeting at Courteney Cox’s Malibu beach house on Oct. 5, 2019. Had the paparazzi gotten wind, pandemonium would have surely ensued. ¶ Cox invited her five “Friends” costars — Jennifer Aniston, Lisa Kudrow, Matt Leblanc, Matthew Perry and David Schwimmer — for a rare reunion dinner. The gathering was memorialized in a grainy sixshot selfie that Aniston posted a week later when she joined Instagram. ¶ Before the former costars got down to reminiscing, however, there was business to attend to. The top brass from Warnermedia had made the trek earlier in the day to Cox’s home to discuss the latest plans for the Warner Bros. TV sitcom that made its stars household names in the mid’90s. ¶ Bob Greenblatt, Kevin Reilly and Sarah Aubrey — the executives leading the charge for Warnermedia’s ambitious HBO Max streaming venture that bows May 27 — came by to explain exactly what the company’s new ondemand streaming service was and how it would showcase the 236episode library of “Friends.” They outlined their vision for a global platform to compete with Netflix, Amazon, Disney and others in TV’S new frontier of the directtoconsumer cavalcade. ¶ Then the trio broached the idea of some form of “Friends” reunion event to propel the service. ¶ “We didn’t talk a lot of business, but we did talk about how maybe this could happen,” says Reilly, chief content officer for Warnermedia Entertainment and Direct to Consumer. ¶ Courting the “Friends” cast was one of the more glamorous tasks on what has been a 14month marathon to get HBO Max off the ground. The investment is the biggest bet to date made by AT&T to realize the promise of its $85.4 billion acquisition of Time Warner. The directive last year from then-warnermedia CEO John Stankey — the AT&T veteran set to become CEO of the telco giant in July — was a galvanizing force for company insiders at a time when HBO, Turner and Warner Bros. rocked by management upheaval and the exit of top executives from the previous regime. Bringing Warnermedia boldly into the streaming wars has been job one for Greenblatt ever since the NBC, Showtime and Fox veteran was recruited to lead Warnermedia Entertainment and Direct to Consumer in March 2019. The timetable for HBO Max’s target spring 2020 launch date was incredibly aggressive — a challenge that Greenblatt believes helped Team Max power through its planning even as it faced a huge curveball with the pandemic lockdowns that began in mid-march. “We didn’t have the luxury of spending three to six months figuring out what product we wanted to build and what the service should or shouldn’t be,” Greenblatt says. “All of our decisions had to be made quickly.” AT&T has pledged to invest $4 billion in HBO Max over the next three years. That includes the cost of programming for the service as well as lost WarnerMedia earnings from steering movies and TV shows to HBO Max that otherwise would have been licensed to outside buyers. “AT&T is a massive company. They’ve got the scale and the financial resources to back a direct-to-consumer platform
that really does compete head-to-head with the big boys,” says John Hodulik, the UBS telecom analyst who has covered AT&T for 20 years. “It’s the right thing for them to do from a capital allocation standpoint. Do you continue to invest in the distribution that is slowly dying, or do you invest in the growth area? Generally, you invest in growth.” The hope is that HBO Max is built up over the next few years to be a multipurpose platform for the global distribution of Warnermedia content as well as an engine for bundling subscriptions to AT&T’S wireless and data services. The fear is that an underwhelming HBO Max would tarnish or, worse, be a financial strain on HBO proper. The pay TV pioneer generated operating income of $2.3 billion from revenue of $6.8 billion in 2019. “Everyone involved in [HBO Max] feels the pressure of doing something that is worthy of the title of the network,” says Greg Berlanti. The prolific Warner Bros.-based multi-hyphenate is shepherding numerous series for HBO Max, including a big-budget take on “Green Lantern.” The team behind HBO Max has had to roll with the pandemic punches in the last mile before its scheduled start. Plans for the “Friends” reunion to launch the service were scuttled by the lockdown, but the special (with a payday of $2.5 million per star) remains a go, as soon as shooting in person is practical and schedules align. Nor will there be the same quantity of HBO Max originals as expected for the launch and on through early 2021. Marketing campaigns had to be rebuilt almost from scratch when key events including the March Madness college basketball tournament, which is carried by Turner networks, were hastily scrapped. “All of a sudden all of our marketing organized around sporting events, Comic-con — now all these events were not happening,” says Andy Forssell, a Hulu and Otter Media veteran who is executive VP and general manager of HBO Max. “Those plans were redone from the bottom up at the last minute.” Warnermedia chief marketing officer Chris Spadaccini led the charge. On the production side, more than 30 HBO Max projects were shuttered as a result of the pandemic. Aubrey spent her last Friday in the office — HBO Max for now has set up shop in Turner’s Burbank office building, around the corner from the Warner Bros. lot — and called producers for those shows to discuss the extraordinary circumstances and commiserate. They also scrambled to get a few projects set up with remote editing tools. “It’s important for them to hear directly that we’re here to support the production,” Aubrey says. “Some people were like, ‘Oh, are you going to use this as a reason to cancel the show?’ We all felt it was really important to put a personal message of assurance behind that.” Greenblatt admits he was worried that the widespread shutdowns would present a bigger hardship than it’s been to have executive teams communicating by Webex video meetings and text messages. “Can the last lap of this all be done at home? Miraculously, the answer is yes,” Greenblatt says. “It’s still shocking to me that it was all still able to carry on, even the tech side of it.” On March 20, early in the lockdown, Stankey convened a videoconference call with Greenblatt and other key lieutenants. The group had settled on May 27 as the launch date months before but still hadn’t made it official to the public. On the call, Stankey observed that “the world has changed” and asked the team how it was feeling about the launch. “Across the board everyone was like, ‘Let’s go,’” Forssell recalls. “There really wasn’t a lot of debate about it.” Stankey marvels at the progress that has been made in barely a year. He first started thinking about how Time Warner assets could be used to support a Netflix-esque streaming platform at the time that AT&T began the secret due
“WE DIDN’T HAVE THE LUXURY OF SPENDING THREE TO SIX MONTHS FIGURING OUT WHAT PRODUCT WE WANTED TO BUILD AND WHAT THE SERVICE SHOULD OR SHOULDN’T BE.”
Bob Greenblatt
“WE HAD TO CHANGE THE BUSINESS MODEL. ANY [CONSUMER-CENTRIC] INDUSTRY THAT IS GOING TO BE RELEVANT IS GOING TO HAVE TO HAVE A DIRECT RELATIONSHIP WITH ITS CUSTOMERS.”
John Stankey
diligence process on the Time Warner acquisition in the summer of 2017. “Imagine sitting here today without having this opportunity in front of us,” Stankey says. “Imagine [AT&T] walking into this industry not being in a position to do what we need to do to compete.” Four years ago, it was clear to Stankey and outgoing AT&T CEO Randall Stephenson as they weighed the purchase of Time Warner that the pay TV foundation of the company’s television businesses was in a state of transition. “We had to change the business model, and we had to change our mindset around it,” Stankey says of the reengineering required within HBO, Turner and to a lesser degree Warner Bros. “It wasn’t just the arrival of Netflix. Any [consumer-centric] industry that is going to be relevant moving forward is going to have to have a direct relationship with its customers.” The question of the price tag for HBO Max was a parlor guessing game until Warnermedia unveiled the $14.99 target as part of its Oct. 29, 2019, Investor Day presentation. The company had little choice, because to go much lower than $15 would cause HBO to be in breach of its traditional MVPD carriage agreements, which still generate the lion’s share of HBO’S revenue. Existing HBO customers will get HBO Max as an add-on at no extra charge. This means that HBO Max needs to grow subscribers at a steady clip from the Hbo-only starting point to make the investment pay off. AT&T has forecast reaching 50 million HBO Max subs in the U.S. by 2025 and 75 million to 90 million worldwide. Stankey was amused by the intense focus on HBO Max’s price amid the streaming wars. “There are all kinds of opinions about price. Every member of the board of directors had an opinion about the price,” he says. But in his experience, “price is the easiest attribute to change in a product. It’s the 20-pound sledgehammer in marketing.” JEREMY LEGG HAD HEARD IT ALL before, many times. Warnermedia’s chief technology officer counts himself as among the few surviving executives who came to Time Warner through the AOL acquisition in 2001. Over the years, Legg has worked up many a Power Point and spreadsheet presentation When HBO decided to go over the top with the stand-alone HBO Now broadband app in 2014, consideration was given to the possibility of adding more Time Warner-related content to the service. In the end, in part because HBO, Turner and Warner Bros. operated as separate entities, the decision was made to keep HBO Now exclusive. When Legg met with Stankey after AT&T reached its agreement to buy Time Warner in October 2016, the prospect of creating a streaming service was the first thing the incoming boss wanted to talk about. Legg couldn’t help noticing Stankey’s determination to get it done. All of the enthusiasm about the merger possibilities was put on ice for 20 months while AT&T battled the Justice Department’s efforts to block the acquisition. In June 2018, two days after AT&T prevailed in the antitrust trial in D.C. federal court, the telco closed the deal, although it was under orders to keep the Turner assets separate from the rest of what AT&T renamed Warnermedia while the government pursued its appeal. By the fall of 2018, Stankey had given Legg a new mission and job — overseeing technology for HBO and Turner. That would facilitate the larger goal of having the units collaborate on the tech and content to power the new streaming platform. Another key decision was to build the infrastructure for HBO Max on the back of the existing HBO Now streaming platform rather than starting from scratch. “John’s analogy to me was, ‘We’ve got a 200-horsepower car. I need you to build me an 800-horsepower car,’” Legg says. In late November 2018, around the time Stankey outlined the broad strokes of what he called “a software experience wrapped around creative excellence” at an AT&T investor day presentation, AT&T marketing executive Brad Bentley was tapped to serve as general manager of Warnermedia direct-to-consumer. Bentley, who had worked with Stankey in his previous job at AT&T Entertainment, was not destined for a long run, leaving after eight months as it became clear he was not a good fit, according to sources. But Stankey’s other significant streaming appointment at the time was well-equipped to seize the moment. Reilly’s expansion of duties in December 2018 from chief content officer for Turner to steering programming for HBO Max was the first of many signals that AT&T was reallocating resources from Turner’s TNT, TBS and TRUTV to the new service. Barely six weeks after Reilly’s appointment, he enlisted Aubrey, who