1/ Most HBO Max commentary overlooks why a "telephone company" bought a media co in the first place

AT&T plans to invest $4B in HBO Max, after $108B buying TimeWarner + before accounting for Max-related declines in Turner/DirecTV etc

Goal? +$1B a year in profit in 2024. Weird!
2/ Why would AT&T, which generates $29B in cash per year (more than almost any public company in the world), do such a thing?

It& #39;s not really HBO Max upside: driving from $6B+ revenues and $2B+ profit to $7B and $3B. Yay?

It& #39;s the $72B wireless arm (there& #39;s also Xandr, below)
3/ Every 0.1% reduction in AT&T Mobility churn (~2.9% per month) generates ~ $350MM in annual cash profit for AT&T.

Then there& #39;s new customers. AT&T spends $300+ to get new wireless customers. It does this ~5MM times per year. If free HBO drops this cost, it saves enormously
4/ To this end, there& #39;s a weirdness to praising Amazon Prime Video as a free "orthogonal strategy" to the Prime Membership, or Verizon using free Disney+ to attract/retain subscribers, but then saying this strategy is dumb and AT&T should be a dumb pipe telco
5/ This connects to the key feature of the Internet: zero marginal costs (in turn why network effects are so valuable)

It costs AT&T nothing to give a customer free HBO Max, but the customer will value free HBO >$0.

Giving discounts, retention promos, etc., DOES cost AT&T
6/ And every additional HBO Max customer drops the allocated programming cost for every other subscriber, thus increasing contribution for ALL subs

Note that Verizon has to pay Disney maybe $4-5 per month for every sub that gets Disney+ "Free". There are HIGH marginal costs here
7/ AT&T also plans to launch an ad-supported HBO Max (maybe $7-10 per month). Odds are that when this is released, it will become the "free" HBO Max.

This will still give AT&T churn/acquisition benefits, but now it& #39;ll generate incremental, zero marginal cost revenue from ads
8/ And in turn, HBO Max is overall intended to drive data/scale/revenue to AT&T& #39;s would-be competitor to Google & Facebook, Xandr.

The "3rd ad platform" strategy has been tried by many (Yahoo, Verizon, Snap) and has never worked, but is the plan
9/ This isn& #39;t to say AT&T will generate a great return on $108B TimeWarner, but focusing on whether HBO goes from 35MM subs to 50MM subs, and whether that& #39;s "worth it" misses the point.

AT&T will get there, if just because it gives it away for free - because that IS the point
10/ Of course giving HBO Max away has a cost - some previously paid, some would have paid, Warner could have licensed titles to Netflix, etc.

But MOST don& #39;t have HBO today. Netflix has 2x the subs, still growing.

And Netflix is playing in a fairly small market - pay TV
11/ Wireless is a MUCH larger business. Maximizing video is worth a lot less to AT&T (or anyone) than maximizing wireless , digital advertising, digital retail (Amazon), smartphones and services (Apple), etc.

Which is why it& #39;s the dominant strategy today https://www.matthewball.vc/all/minedmedia ">https://www.matthewball.vc/all/mined...
12/ Gets to absurdity of "distribution v content", "Hollywood v Tech" or "telephone company v media".

Everything is a platform/ecosystem now. Pure play media been getting squeezed since the 60s.

Insolvency forced Columbia to Coca Cola, then a TV maker https://twitter.com/ballmatthew/status/1191041406959267841?s=20">https://twitter.com/ballmatth...
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