AT&T (NYSE:T) will launch HBO Max on May 27, and CEO John Stankey says it'll be available on virtually all app stores, except for maybe one. "It looks like we may not be in the Amazon (NASDAQ:AMZN) Fire app store when all of this is said and done," he said at a recent investor conference.
AT&T wouldn't be the first company to face challenges negotiating distribution with Amazon. Disney (NYSE:DIS) also went down to the wire in negotiations with Amazon for distribution of Disney+ in November.
The stakes with Amazon are high. Millions of HBO Now subscribers pay for the service through Amazon Prime Channels, and those customers won't get upgraded to HBO Max. On top of that, Fire TV has over 40 million active accounts worldwide, and represents a key distribution platform for WarnerMedia's various streaming services, not just HBO Max.
A dispute over Channels?
While Stankey only mentioned HBO Max won't be in the Fire TV app store, analyst Matthew Ball thinks the comment also suggests the media company is trying to pull back its Channel agreement.
AT&T has been doing its best to go directly to customers. It's offering a pre-launch promotion to customers that sign up directly through hbomax.com -- $11.99 per month for the first year, instead of $14.99 per month. The offer is designed to get customers to cancel their current subscriptions through platforms like Channels or Apple (NASDAQ:AAPL) TV Channels.
A lack of distribution through Amazon Prime Channels could cause short-term pain. HBO will lose some subscribers that prefer paying through Amazon, and it'll have to spend more on customer acquisition. But the long-term benefit is that AT&T can keep more subscription revenue for itself.
Interestingly, Apple agreed to terms to distribute HBO Max through Apple TV Channels in April. But Apple's business model is different from Amazon's; Apple makes most of its money on hardware sales. And while it's shifting more revenue to services, it may have agreed to less favorable terms for HBO Max in order to draw more customers to the Apple TV platform.
Amazon's fighting back
It's possible Amazon is merely taking the change from HBO Now to HBO Max as an opportunity to renegotiate existing distribution deals for other WarnerMedia streaming services. Amazon was reportedly looking for additional ad inventory from Disney's other apps -- Hulu, ESPN+, and its TV Everywhere services -- when it was negotiating distribution of Disney+. It could merely be aiming for a greater share of ad sales for WarnerMedia's TV Everywhere apps.
Or it could be seeking better terms for distribution through the Channels platform. Management's financial outlook from its investor day last fall indicated a dramatic increase in revenue per subscriber over time. That suggests AT&T is looking to use HBO Max to increase its wholesale price to distributors while forcing them to keep the retail price at $14.99 per month. It can do that because it's offering the service directly and it also has its own massive distribution capabilities through its wireless and television subscribers.
Stankey contends not much is changing in that regard, though. "The product itself will still have very similar financial characteristics to a distributor as HBO," he said.
But with a strong presence in the all-important connected-TV market, Amazon has a lot of negotiating power with media companies. Without access to HBO Max on Fire TV, a lot of consumers will experience friction when they look to sign up for the service later this month. That could negatively impact HBO Max's launch numbers.
Apple's presence in the market is relatively small, and the ability to stream and subscribe within the Apple TV app isn't nearly as important to most subscribers. While Apple has a massive install base, it doesn't have as much negotiating power when it comes to streaming services. So, AT&T had a much easier time coming to an agreement.
There's a lot at stake for both Amazon and AT&T in getting a deal done for HBO Max distribution on Fire TV. They'll likely figure out something -- a detente hurts both companies -- but their new deal will probably look very different from their current partnership.