"Content that matters to viewers is the real point of differentiation," HBO Max Chief Content Officer Kevin Reilly told the audience at AT&T's (NYSE:T) WarnerMedia event last October. Indeed, HBO has a long legacy of producing top-quality series its viewers love.

Management has continually stressed the quality of content on HBO Max leading up to and during the launch of the new streaming service. But Netflix (NASDAQ:NFLX) has twice as many high-quality original TV series on its service as HBO Max (151 vs. 75), according to data compiled by Reelgood. (The bar for a high-quality series is an 8.0 or higher rating on IMDb.) 

Granted, HBO is still in the early days of HBO Max, launching with just eight additional originals on top of its HBO catalog. But it has a long way to catch up to Netflix, and investors shouldn't expect HBO Max originals to all be amazing. In fact, there's good reason to expect a lot of the new HBO Max series will be mediocre.

Four boys on bikes riding toward an ominous sunset.

Promotional art for Netflix's Stranger Things. Image source: Netflix.

How Netflix does it

Netflix has significantly ramped up original productions over the last few years. All told, it has 674 original series available to viewers on its service, significantly more than the 190 on HBO. So Netflix doesn't have the highest strike rate; less than one-quarter of its originals get good reviews.

But Netflix doesn't really care about its strike rate. The company doesn't risk premium airtime on Sunday nights if one of its originals is a flop. Netflix can make content that's only intended to strike a chord with a small audience, while the vast majority of viewers stop watching before they finish the first episode. Unlike traditional media companies, it's not constrained by trying to create content every one of its subscribers will enjoy. So it can create a lot more content without betting a lot on any specific series' success.

Every so often, you might have a Marco Polo on your hands. But for every flop, you might find a Tiger King. And viewers can choose how to spend their time instead of being subject to whatever fits in the programming schedule.

HBO hasn't had that luxury up until this point. Since its over-the-top service, HBO Now, was tied directly to its linear network, it had to make content that most of its subscriber base would enjoy. But with the launch of HBO Max, it can take more risks and bet on content not all subscribers will necessarily like, but some might absolutely love.

A man and woman in Old West outfits on horseback.

A still from HBO's Westworld. Image source: HBO.

Will HBO Max take those risks and spend enough on content?

HBO Max plans to release 31 original series in 2020 and 50 in 2021. That should put its original series count near one-third of Netflix's. But if HBO is being aggressive with its content budget, in order to catch up with Netflix, investors shouldn't expect a lot of those originals to be hits. Some need to be, but certainly not most.

The goal of HBO is to expand the audience beyond HBO's core demographic. To do that, the company will need to take a more Netflix-like approach with its HBO Max originals. That means more risks, more guilty pleasures, more shows that appeal to a section of the audience outside of HBO's core. Those series might not get high ratings, but they will attract and retain new subscribers.

AT&T is investing $4 billion in HBO Max over the next three years. It should be looking to invest that money like Netflix, not like HBO, in order to grow its subscriber base big enough and fast enough to offset the cost.