Mic Drop #8: Predictions on HBO Max with Amazon & Roku
Predictions from June and July Play Out in November
I connect the dots across the OTT streaming marketplace for your competitive edge at PARQOR.com. Here, I will be highlighting and celebrating “mic drops” on my predictions from past PARQOR Member mailings.
WarnerMedia’s ongoing negotiations with Roku for HBO Max distribution are back in the headlines. The stakes seem higher for both after the announcement Wonder Woman 1984 will go direct-to-HBO-Max alongside a theatrical release on Christmas Day (which I also wrote about on the PARQOR blog).
WarnerMedia reached agreement with Amazon to roll out HBO Max on Amazon Fire TV streaming devices, Fire TV Edition smart TVs, and Fire tablets starting Tuesday, November 17. That will help it to reach an estimated 40MM+ active users of its Fire devices (as of January 2020).
But, it has yet to reach an agreement with Roku, which now has 46MM active accounts (the majority of whom are based in the U.S., so presumably closer to 40MM).
What was holding up the negotiations with Amazon, and what is holding up the negotiations with Roku?
I made three predictions regarding both deals back in June and July. If you are an existing PARQOR Member, you can download the PDF of my predictions from June for free, or if not, at the same link with the coupon code SUBSTACK (automatically appended to this link).
Prediction #1: Disney-Amazon Deal is Precedent
First, I wrote back in June that the Disney-Amazon deal for licensing Disney content to IMDb TV had allowed Disney to bypass the Channels interface, and therefore:
…it is reasonable to assume that both Roku and Amazon see the Disney deal as precedent, and are asking for AVOD-exclusive deals for WarnerMedia library content.
We learned back in July from Alex Sherman at CNBC that:
Peacock and HBO Max are wrestling with Amazon on issues regarding who controls user information.
NBCUniversal executives don’t want Peacock to be included within Amazon Channels, Amazon’s store for video app purchasing, two of the people said. While some streaming apps, such as CBS All Access and Starz, can be purchased through Channels, others, including Disney+, cannot. Amazon takes a percentage of revenue for each customer that subscribes through the store.
Both AT&T and Comcast, which owns NBCUniversal, are pushing back on Amazon because of its deal with Disney, which was struck in November, according to people familiar with the matter.
Nailed that one.
Prediction #2: No Library Sharing with IMDb TV
The WarnerMedia press release seems to imply that WarnerMedia did not get Disney terms. How do we know this? There are still HBO Channels users after WarnerMedia was specifically seeking to end its Channels relationship with Amazon:
Immediately upon launch, current subscribers of HBO through Amazon’s Prime Video Channels will be able to log in to the HBO Max app with their Amazon credentials at no additional cost.
I think this sentence implies that WarnerMedia will not be exclusively licensing content to IMDb TV, because the Disney precedent suggests that was the trade-off Amazon was seeking.
That was my prediction in June (download for free with the coupon code SUBSTACK):
So, what would be the hold up for an exclusive content licensing deal like this? Coming back to Otter Media CEO Tony Goncalves' quote "There are certain business models that exist, and we each have our own" line, I think AT&T revealed their hand at a recent Deutsche Bank Conference in March. There, AT&T's CFO John Stephens said to expect an AVOD product in 2021, "an advertising-assisted product to provide the affordability of the product into more people by the use of advertising and supplementing it so that, if you will, we're still generating the revenue, but it doesn't have to necessarily come out of the consumers' pocket."
So, the hold up would be that AT&T has no interest in sharing library content for ad-supported deals because that would mean it would be sacrificing owning the ad-supported customer relationship.
We learned a few weeks later in July from Jessica Toonkel of The Information that:
At the same time, rivals like Netflix and Disney are making more of their own shows, giving them more control over the programming on their services. Kilar wants WarnerMedia to make more of its shows for HBO Max, for instance, to ensure that it will have the right to stream them overseas once the service launches outside the U.S., as it plans to do eventually….
To force employees to alter their thinking, the company has discussed modifying executive compensation to discourage the licensing of content to other companies, according to people familiar with the situation.
WarnerMedia was not going to license HBO content to Amazon’s IMDb TV, and so far all evidence suggests that they did not, even if meant conceding that Amazon could keep HBO Channels users within Channels.
Prediction #3: The AVOD Tier is an Obstacle in Negotiations
HBO Max’s negotiations with Roku have had the content licensing issue in common with its negotiations with Amazon. However, unlike the Amazon negotiations, in these negotiations the remaining question to be solved is in AVOD, as independent journalist Matthew Keys reported this week ($ - paywall):
…is keeping Roku and AT&T from sealing a deal, with both sides bargaining over how often Roku will be allowed to drop its own commercials in during ad breaks on HBO Max programs, the source said. Like Comcast, AT&T intends to keep commercial interruptions on the ad-supported version of HBO Max at a minimum, and the company is trying to figure out how much of its inventory to offer Roku.
I wrote back in mid-July that HBO Max pursuing an AVOD tier was going to be a problem in its negotiations with both Amazon and Roku:
If HBO Max did offer [an AVOD] tier, in reaching an agreement with both Amazon and Roku it would face two difficult business decisions which involve competing with Amazon's and Roku's own free, ad-supported services:
Whether to integrate with the Channels interface, thereby competing with IMDb TV and Roku channel, directly; and
Once integrated, how much content to license and ad inventory to share with Amazon and Roku.
Matthew Keys reported that both parties have “largely resolved the issue involving native subscriptions and commissions”. But, as I predicted in July, HBO Max is still “is trying to figure out how much of its inventory to offer Roku”.
[NOTE: It is also worth highlighting how HBO Max integrates with the Roku Channels interface is “largely resolved” but not fully resolved.]
(Feel free to share this free newsletter to any and everyone you want. It helps spread the word.)
(If this email was forwarded to you, I am a former Viacom executive who connects the dots across the OTT streaming marketplace for your competitive edge at PARQOR.com. You can follow me on Twitter, where I often have fun exchanges with other folks interested in the streaming business, or on LinkedIn, which seems to be a fantastic channel for sharing positivity, but less optimal channel for sharing content).