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3 Big Missing Pieces From AT&T's HBO Max Launch

By Adam Levy - May 22, 2020 at 2:00PM

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AT&T has struck deals with lots of partners, but it's missing three significant ones.

AT&T (T -0.81%) is set to launch HBO Max next week, and it's lined up a lot of distribution partners. It announced partnerships with a host of pay-TV providers and connected-TV platforms, but there are a three big omissions from its current lineup: Comcast (CMCSA -2.73%), Amazon (AMZN -1.85%), and Roku (ROKU -6.78%).

Soon-to-be CEO John Stankey told investors earlier this month that HBO Max probably won't be available on Amazon's Fire devices at launch. He was confident the company would get deals done with everyone else ahead of the service's debut on May 27.

It's not a huge surprise AT&T has been unable to strike deals with the largest pay-TV provider in the country, and pushback from Amazon and Roku was to be expected. AT&T's strategy with HBO Max seemed to be to leverage its nationwide distribution for its pay-TV and wireless services in order to squeeze the margins on its smaller competitors in cable TV. But launching without these three platforms will put a significant damper on HBO Max's ability to sign up new subscribers.

John Stankey on stage in front of a screen displaying the HBO Max logo.

AT&T's soon-to-be CEO John Stankey. Image source: AT&T.

Counting on Comcast's subscribers

AT&T expects 50 million Americans to subscribe to HBO Max by 2025. The majority of that count comes from existing HBO subscribers. Management says 10 million HBO viewers subscribe directly through one of AT&T's distribution channels: pay-TV, wireless, or HBONow.com. But the other 26 million or so existing customers come through other channels, and Comcast is likely one of the biggest.

Comcast has over 20 million video subscribers, and it's been a strong seller of HBO in the past. It even went so far as to offer its customers the option of a bundle of local channels and HBO -- the skinniest of skinny bundles -- in 2013 and 2014 before the launch of HBO Now.

Winning over Comcast and its millions of HBO subscribers will be difficult for AT&T. While it's able to offer nationwide pay-TV service through DIRECTV, its fiber footprint -- for providing high-speed internet service -- only overlaps with 14% of Comcast's cable footprint. With the importance of high-speed internet for video-streaming services like HBO Max, it might be difficult for AT&T to put additional pressure on Comcast with the threat of winning over its customers. That said, AT&T was able to get a deal done with Charter (15% overlap).

Comcast is notably competing with HBO Max. It introduced Peacock to its X1 and Xfinity Flex customers last month. It'll launch nationwide in July. That extra level of competition may be a factor holding up negotiations.

How are you supposed to stream HBO Max on a TV?

A bigger concern for AT&T may be that it doesn't have deals with the two largest connected-TV platforms in the United States. Amazon and Roku combined to account for 70% of installed streaming devices in the United States last year. And their share of the market is getting bigger, as they're growing faster than the rest of the industry.

An inability to stream HBO Max on a subscriber's preferred connected-TV platform is an instant deal-breaker for most would-be customers. While streaming services are available on just about any device, most streaming happens on television sets. Fifty-six percent of streaming hours worldwide were on connected TV devices in the third quarter last year, according to data from Conviva. That number is likely considerably higher in the United States, where TV and home broadband penetration are higher than average.  

As Amazon and Roku have become more important partners for media companies, both have become more aggressive in negotiations for supporting streaming services. AT&T's best hope is to play one off the other, positioning HBO Max as an opportunity to grab share from the other connected-TV platform. To that end, Roku actually has more to gain from striking a deal despite having a larger market share than Amazon in the U.S. HBO has a lot of subscribers through Amazon's Prime Channels feature that Roku may be eager to convert.

While AT&T has made a lot of progress in signing up distribution deals for HBO Max, the launch could be a big disappointment without Comcast, Amazon, and Roku. The clock is ticking for it to get these agreements done.

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. The Motley Fool owns shares of and recommends Amazon and Roku. The Motley Fool recommends Comcast and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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AT&T Inc. Stock Quote
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T
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Amazon.com, Inc.
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Comcast Corporation
CMCSA
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