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AT&T Will Use HBO Max to Improve TV and Wireless Customer Retention

By Adam Levy - Oct 28, 2019 at 11:32AM

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Current AT&T customers with HBO will get a free upgrade to HBO Max at launch.

AT&T (T 0.14%) is giving its customers a reason to subscribe to HBO through one of its various channels. The 10 million HBO subscribers that pay for it through their AT&T TV or wireless bill, or pay WarnerMedia directly for HBO Now, will get access to HBO Max at no extra charge when it launches in April, COO John Stankey told Reuters. In the long term, the company hopes HBO Max will help retain wireless subscribers, according to executives cited by Reuters.

Giving customers a reason to stick around

AT&T is well versed in bundling. After acquiring DIRECTV and launching DIRECTV Now (which is now called AT&T TV Now), the company aggressively bundled its over-the-top service with its wireless service. It's eased off since, merely pushing a skinny bundle of linear television channels on its unlimited wireless data plan subscribers.

A man and woman on horseback.

A still from HBO original series Westworld. Image source: HBO.

The move to offer Max to HBO subscribers that also subscribe to one of AT&T's many television services or its wireless service is a bit more unique. HBO subscribers should already have a strong interest in HBO Max, although there seems to be some hesitancy. Providing the 10 million AT&T customers with HBO a free upgrade could help seed the customer base and get people talking about it, improving HBO subscriber retention (now that Game of Thrones and Veep are done) on top of keeping those customers with AT&T for their television or wireless phone needs.

Stankey also hinted at the possibility of creating a new bundle for HBO Max with one of AT&T's wireless plans. The company already technically offers such a plan; its high-end unlimited data plan includes a subscription to one of several streaming options, including HBO Now. Those customers that currently take HBO Now ought to qualify for the HBO Max upgrade when the service launches next spring. But a lower-priced plan with just an option for HBO Max could increase uptake and reduce churn for AT&T.

That said, MoffettNathanson analyst Craig Moffett pointed out to Reuters, "AT&T hasn't seen any more improvement (in churn) with wireless/video bundling than Verizon (VZ -2.73%) has seen without it." 

Verizon notably just announced a partnership with Disney to offer its unlimited wireless data customers a free year of Disney+. The move may have been preemptive to combat incentives AT&T might provide customers interested in HBO Max.

What the move means for everyone else

A spokesperson confirmed to Reuters that HBO Now subscribers that signed up directly with WarnerMedia are eligible for the upgrade in April. In all likelihood, that means the company will launch HBO Max at $14.99 per month, the same price as HBO Now.

It could, however, result in two different prices for the service. One price for consumers subscribing directly with AT&T, and another for those that subscribe through an aggregation service like Amazon Channels or Apple TV Channels.

AT&T is building HBO Max for scale. It expects to reach 80 million subscribers by 2025, with 50 million of those in the United States. As such, it expects to create efficiencies in costs of delivering the service and handling customers. The value of aggregation services for distribution is greatly diminished when a service has scale. That's why none of the big over-the-top services are available on the aggregators.

The future may see AT&T raise the price for HBO Max while keeping HBO Now's pricing the same. Or WarnerMedia may eventually pull the option to sign up for HBO from those services, even though Amazon Channels currently accounts for a large portion of HBO Now subscribers.

One of AT&T's goals with HBO Max appears to be to foster more direct customer relationships. The move to offer current HBO customers with an existing AT&T relationship a free upgrade to the service may be just the first step. But AT&T will have to balance that goal with its aim of scaling the service and how it works with other distributors.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Levy owns shares of Amazon, Apple, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, and Walt Disney. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2021 $60 calls on Walt Disney, and short January 2020 $130 calls on Walt Disney. The Motley Fool has a disclosure policy.

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