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AT&T Just Revealed Some Key Details About Its Netflix Competitor

By Adam Levy – Jul 9, 2019 at 5:50PM

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The new streaming media service will be called HBO Max, will launch in spring 2020, and it will not be cheap.

AT&T (T 0.16%) has been working on a new streaming video service for the better part of a year following its successful acquisition of Time Warner (now called WarnerMedia). Management has provided some info about the service, including floating the idea of three tiers of service, but it finally issued a press release today announcing the service it's calling HBO Max.

The release provides several key details about WarnerMedia's streaming plans that could be essential for AT&T investors as well as competitors like Netflix (NFLX -2.04%) and Disney (DIS -0.01%).

Here's what we know so far about HBO Max:

HBO Max logo.

Image source: AT&T.

It has everything but Cinemax

Despite its name, HBO Max apparently will not include content from Cinemax. Customers who want access to Cinemax originals and its library of licensed films will have to pay their cable provider. WarnerMedia doesn't offer a direct-to-consumer version of Cinemax like it does with HBO.

The release said HBO Max will include "programming from Warner Bros., New Line, DC Entertainment, CNN, TNT, TBS, truTV, The CW, Turner Classic Movies, Cartoon Network, Adult Swim, Crunchyroll, Rooster Teeth, Looney Tunes and More" on top of all of HBO's content and new originals.

WarnerMedia won't be able to offer every piece of content from its networks to its subscribers, however. For example, it has series-run deals in place with Netflix for its existing CW series. So, shows like Riverdale and The Flash will still be on the streaming leader for as long as they're still on the air. Other back-catalog content may be locked up for some time in existing contracts with other streaming services like Hulu, of which WarnerMedia previously owned 10%.

Still, the service will launch with over 10,000 hours of content, which ought to keep subscribers busy while they wait for the next HBO original debut.

There's a big content budget

AT&T didn't provide exact details on how much it plans to spend on content for HBO Max, but the budget looks to be pretty substantial.

It announced a 50% increase in HBO Original spending. Prior to its acquisition, HBO spent about $1.1 billion on its original series, films, and sports programming. The company is spending an extra $500 million or so on HBO content alone.

On top of that, it bought the exclusive rights to Friends, The Fresh Prince of Bel-Air, and Pretty Little Liars. It's also licensing all of the new DC Entertainment series being broadcast on The CW. WarnerMedia is paying $85 million per year for five years for the rights to Friends alone, so it's likely the back catalog of content adds up. Even though WarnerMedia is licensing that content from its own studio, the cost is real.

Finally, WarnerMedia is producing its own slate of originals for the new service. While there's no indication of what kind of budget it has, the lineup of shows will feature several high profile names, including Reese Witherspoon, Anna Kendrick, Paul Feig, and Kaley Cuoco. 

Combined with HBO's existing content budget, WarnerMedia is spending several billion dollars per year on content for HBO Max.

It launches next spring

HBO Max's commercial launch is set for sometime in the spring of 2020. Management initially planned to launch by the end of 2019, but now it only plans a beta release by then. As such, Disney will get a bit of a head start over WarnerMedia when it launches Disney+ in November. That could give it an edge as legacy media companies battle for a place in consumers' app launchers next to Netflix.

One thing that's still unknown is pricing, which isn't much of a surprise. WarnerMedia faces a considerable challenge in pricing its service due to legacy pricing for HBO through cable TV distributors. WarnerMedia has committed not to sell HBO for less than $15 per month in order to maintain a good relationship with traditional distributors, which still account for the vast majority of its subscribers. 

But with plans to scale the service to 70 million subscribers, WarnerMedia can't price HBO Max much higher than $15 per month considering Netflix costs $13 per month for its most popular plan and Disney+ will cost just $7 per month or $70 per year. Consumers are more likely to subscribe to those alternatives if HBO Max is too expensive.

AT&T releases its second-quarter results on July 24. Investors should look for additional details from management during the earnings call.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

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