Netflix and the Fall of Television | To the Max | 3

0:11It's June 2018 in New York City. HBO CEO Richard Plepler strides onto the stage of a screening room in HBO headquarters. He stares out at an audience full of HBO employees. He can feel the nervous energy emanating off of them. Plepler shares some of that anxiety. Nearly two years ago, in October 2016, AT &T announced its plan to purchase HBO's parent company, Time Warner. Almost immediately, the Justice Department objected to the merger on antitrust grounds. And for 20 months, the sale has been in legal limbo. But five days ago, a federal judge approved the sale, giving HBO a new owner. And today, Plepler is leading the first company-wide meeting with their new boss, AT &T executive John Stanky.

0:59No one, including Plepler, is sure how this acquisition is going to play out. The entertainment business is a new industry for the telecom giant to take on, and many at HBO aren't sure AT &T knows how to run a media company. But hopefully, after today, Plepler and other executives will have a better read on their new boss. Plepler thanks everyone for coming and lays out the plan for the meeting. For the next hour, I'll be chatting about the future with our new leader, John Stanky. And I want to assure you that there will be time for you to ask your questions, of which I'm sure there are many. Please, welcome John Stanky to the stage.

1:37Stanky struts out. At six foot five, Stanky towers over Plepler. The two shake hands and then take their seats. Plepler eyes Stanky. He and his new boss don't have a lot in common. Plepler was born and raised on the East Coast, plays tennis, and he's a staunch Democrat. Meanwhile, Stanky is from Los Angeles and relocated to Dallas as he worked his way up the ranks at AT &T. He hunts, fishes, and is a major Republican donor. But Plepler knows that if he wants to stay at HBO, he needs to find common ground and make this new relationship work. Plepler goes for the biggest, most obvious question first.

2:17So, I think what most people in this room, myself included, are most curious about is why AT &T wanted to buy Time Warner in the first place. Why make a move into the world of entertainment? Stanky nods and speaks to the room. So we're on the brink of rolling out the next iteration of wireless network technology 5G. And let me tell you, this baby is a game changer. Using your cell phone out and about isn't going to feel much different from using your laptop in an office. Everything is going to be so fast. Uploads, downloads, everything. You'll be able to watch video anywhere, anytime. Now you couple that with the rise of driverless cars, and we predict that within five to ten years, commutes as we currently know them won't exist.

3:02Now, let's pause here. You see what this is really about, right? This is a classic vertical integration play. AT &T doesn't just want to be the pipeline. It wants to own the water, too. Controlling both the network and the content, that lets them monetize both ends of the value chain. Plupler nods. You mean that since people won't have to drive themselves, they'll have more time to watch content on their phones in the car, right? Exactly. Our estimate is that within four years, people are going to be watching 90 more minutes of video per day. That's over 500 more hours of video per year. And we want to own a piece of what they're watching.

3:44We don't want them just liking videos on Facebook. I think everyone here can get on board with that mission. Good, because we're going to need you to step it up. Right now, HBO only captures about 35 to 40 percent of the U.S. market. Plepler bristles. That feels like a dig. Plepler is proud of what HBO has accomplished under his tenure. They're one of the most recognized brands in entertainment. They've won dozens of awards. They consistently put out some of the industry's buzziest shows. The lesson here? Never underestimate how a new parent company can change the scoreboard. What once looked like elite market share suddenly gets framed as underperformance.

4:24Yeah, Plepler bristles, but it's nothing personal. Remember, business is war. Well, to be fair, I think we've done a pretty good job with the resources we've been allocated. We've been outbid on some programming, especially by Netflix. Sure, sure, but you can't tell me that HBO hasn't thought of itself as a niche, high-end brand. We pride ourselves on making quality television, yes. Well, that's too limiting. We're going to need to pivot the HBO brand to something much broader. Klepler bites his tongue. Broader often means lower quality. Stanky turns out to face the audience. It's going to be a difficult year, but Silicon Valley is changing how this business operates.

5:06You have your whole Sunday night thing, right? You create zeitgeisty shows, air them on Sunday evenings, talk about how you own Sunday night. Sure, but if we want to go after the big boys, dominating one night a week isn't going to cut it. We need you to own multiple hours, every day. Notice the shift from prestige to volume. The move from a fine dining experience to an all-you-can-eat buffet. You might even call it the Netflixification of legacy media. Klepler eyes Stanky. I think we understand the mandate, but I hope we're all on the same page. That if you want us to create more content that dominates, that requires a significant investment of capital.

5:50Well, don't forget that we need to make money at the end of the day, so we can't blow too much on content. I'd just like to point out that HBO makes money now. Not enough. Stanky flashes Plepler a grin, and Plepler clenches his jaw. He tried going into this town hall with an open mind, but Plepler doesn't think he's going to last long under the new regime. Plepler has spent his career crafting the HBO brand around producing quality high-end work, but his new bosses don't want that. In the era of streaming, bigger is better. But can a high-end brand really manage to broaden its appeal enough to attract new customers without alienating their old ones?

6:41So, you just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. See, when it comes to hiring, Indeed is all you need. Stop struggling to get your job post seen on other job sites. Indeed's Sponsored Jobs help you stand out and hire fast. With Sponsored Jobs, your post jumps to the top of the page for your relevant candidates so you can reach the people you want faster. And that makes a huge difference. According to Indeed data, Sponsored Jobs posted directly on Indeed have 45 % more applications than non-sponsored jobs. Plus, with Indeed sponsored jobs, there aren't any monthly subscriptions, no long-term contracts.

7:30You only pay for results. How fast is Indeed? Well, in the minute I've been talking with you, 23 hires were made on Indeed, according to Indeed data worldwide. Look, there's no need to wait any longer. You can speed up your hiring right now with Indeed. And listeners of Business Wars will get a$75 sponsored job credit to get your jobs more visibility. That's at Indeed.com slash BW. Just go to Indeed.com slash BW right now and support our show by saying you heard about Indeed right here on Business Wars. That's Indeed.com slash BW. Terms and conditions apply. Hiring? Indeed is all you need. This message is brought to you by Apple Card.

8:18So, you left your wallet in the car. Or was it at home? No need to panic. With your iPhone, you can tap to pay using Apple Card with Apple Pay and earn unlimited daily cash back when you do. Apple Card is ready when you need it. Subject to credit approval, Apple Card issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at AppleCard.com.

8:45From Wondery, I'm David Brown, and this is Business Wars.

9:13Disney Plus take on Netflix. Expectations were high for the House of Mouse. Between its storied history and vast library full of iconic franchises, Disney was considered the studio with the best shot at creating a true rival to Netflix. But Disney executives quickly learned that a popular streaming service isn't necessarily a profitable one. Disney wasn't the only legacy studio planning its counter-offensive against Netflix. After its merger with AT &T in 2018, Warner Media became serious about entering the streaming wars. They decided to use their prestige cable channel HBO as the jumping off point for a new extensive streaming site.

9:58But, nota bene, be careful when stretching a premium brand. Prestige doesn't scale well, and too much dilution can turn your Dom Perignon into supermarket Prosecco pretty fast. Transforming a niche brand like HBO into a platform with broad appeal is a tall order. And AT &T finds itself having some regrets, while a CEO at a low-brow cable company has a vision. This is Episode 3, To The Max.

10:35It's April 2019 in New York City, almost one year after AT &T's takeover of Time Warner. Discovery CEO David Zaslav hooks his laptop up to a screen in a conference room at HBO headquarters. At the head of the table, Warner Media CEO John Stanky types on his phone, ignoring Zaslav. Zaslav clears his throat. Okay, I'm all set. Stanky looks up, giving Zaslav a curt nod. The expression on his face seems to say, let's get this over with. Zaslav isn't surprised. What Zaslav is here to propose seems far-fetched. At Discovery Media, Zaslav oversees a suite of cable channels, including HGTV, Animal Planet, The Food Network.

11:21He's been at the helm since 2006, and he's credited with turning Discovery into an economic force. The cable channels rake in profit by churning out low-cost, unscripted fare that ranges from nature documentaries to reality shows, Everything from Sex Sent Me to the ER to Dr. Pimple Popper. In other words, Discovery makes essentially the polar opposite of Warner's Crown Jewel, HBO, which specializes in high-budget, prestige, scripted television. But that's why Zaslav is here. He sees an opportunity. Zaslav hits a key on his computer and brings up the first slide of his PowerPoint presentation. The screen says, Warner Brothers Discovery.

12:03You ever heard the phrase opposites attract? It's not just true in romance. It's true in business, too. And Discovery and HBO. Those are opposites, no question about it. But as different as we are, we have a lot in common, too. Our brands were both built in the era of cable, and we're both trying to navigate this new streaming environment. And to that end, we both face the same problem. Stanky leans forward. And what's that? We're both too niche. Stanky shifts in his seat. Well, I don't know about that. Look, in the world of cable, having a distinct lane was a solid strategy because you were bundled with dozens of channels and consumers were used to paying high prices for channels they never watched.

12:47But Netflix changed the equation. Now people want large libraries for cheap prices. They want both the Oscar-winning movie and the trashy reality show. You have to have it all. That may be an understatement. Netflix didn't just disrupt how we watch. It reprogrammed consumer expectations. In the streaming era, binge-worthy isn't a compliment. It's table stakes. I don't disagree with that, but Warner Brothers Studios has been around for close to a hundred years. I'm confident we have enough content to launch a broad-based streaming platform. Zaslav raises his eyebrow skeptically. I think you might be underestimating just how much content you really need to go after the big guns.

13:32You have to continuously give viewers a reason to subscribe month after month. Netflix has more money than God, and they're pouring it into content. Disney has one of the most enviable libraries in the business. Forgive me for speaking frankly, but I don't think you stand a chance going against them alone. I have to say I disagree. I think we have the winning combo of content to make our new streaming services a success, but let's just say I did agree with you. It's not like merging is a small undertaking. It took almost two years for our acquisition of Time Warner to go through. We can't afford a delay like that before we enter the streaming market.

14:11There will be some short-term pain, I can't deny that. But just think about the long-term gain. We'll be so much stronger together. there. Stanky hesitates for a moment, then stands up, extending his hand. I appreciate you coming in, but we're not interested in teaming up at this time. Zaslav holds Stanky's gaze for a bit before shaking his hand. As Zaslav exits the building, he reminds himself that some people need to burn themselves before they believe the stove is really hot. And he's confident that Stanky is going to burn himself on this endeavor. And when he does, Zaslav will be waiting to help heal the wound.

14:55He just has to be patient. Undeterred by Zaslav's skepticism, Stanky pushes Warner Media's new streaming service forward. Warner executives hold spirited debates about what to call the service. They want to lean in to HBO's strong brand identity, but they also want to signal that this is more than just HBO. They quickly rule out HBO +, feeling that Plus has been overused in the market. They bandy about HBO Ultra and HBO Verse, but ultimately settle on HBO Max. Executives like that it connotes size, but it's also a person's name, so it feels friendly and approachable. They set a launch date of May 2020.

15:39That gives them roughly a year to build and market the new service. AT &T took on a sizable amount of debt to purchase Time Warner, so Stanky hopes to avoid spending too much money on creating new content, specifically for HBO Max. Instead, to complement HBO's rich history of thought-provoking, award-winning shows, the new HBO Max will include much of Warner Bros.' vast library. This includes classic films like Casablanca, beloved sitcoms like The Fresh Prince of Bel-Air, and children's shows like Steven Universe. But one piece of new content that HBO Max is investing in for its launch is a reunion episode with a cast of the 1990s mega-hit Friends.

16:21For years, the comedy about 620-somethings living in New York City was consistently one of the most popular shows on Netflix. But now, it will exclusively stream on HBO Max. You see, streaming wars aren't just about creating new hits. They're about reclaiming the old ones. Better yet, don't get hung up on the love for classic TV. Think of it this way. Legacy IP isn't about nostalgia. It's strategy. And to further lure in new subscribers, Warner Media executives are reuniting all the show's stars on the old set to reminisce and reconnect. It's the first time the six actors will appear together on camera since the show went off the air in 2004.

17:05They're also creating several new reality shows to beef up the content offerings at a relatively low cost since reality programming is cheaper than scripted dramas. Not everyone inside the company agrees that this approach is the winning combination. HBO's worked hard to build its reputation. By expanding on what HBO represents, it could confuse consumers and muddy what was once a strong brand. But Stanky is convinced that the new streaming service has the perfect balance of content to be successful. He sees this as a marketing challenge. The key is explaining the new platform so consumers understand what's on offer.

17:45That this is not just HBO, it's HBO and a whole lot more. But complicating that mission is the fact that HBO has had its own streaming app since 2010. It's called HBO Now, and it lets audiences view HBO content without a cable subscription. There's a concern that many consumers will think that this is just a rebrand of HBO Now and not a meaningfully different app full of new content. So, the marketing team plans a three-month advertising campaign to explain HBO Max, which is set to kick off during the NCAA college basketball tournament in March of 2020. They also plan events to take place during the South by Southwest Festival in Austin, Texas that same March, and during the Met Gala in May.

18:32They book billboards in the major media markets. But in March 2020, the COVID-19 virus has declared a national emergency. Cities and states start ordering lockdowns shortly thereafter. The NCAA basketball tournament, South by Southwest, and the Met Gala, all canceled. And with production shut down due to the virus, Warner can't shoot the Friends reunion special, which they were counting on to build excitement for the launch. The marketing team is forced to pivot. In April 2020, they roll out their advertising. Instead of worrying that the wide array of content will confuse consumers, they lean into the mishmash of titles that are available.

19:14One ad cuts together content from The Wizard of Oz, Big Bang Theory, and The Dark Knight with the tagline, where HBO meets so much more. They launch a series of billboards in the same vein. One reads, We've Got Redheads, and features comedian Conan O 'Brien, Muppet Elmo, and Sansa Stark from fantasy epic Game of Thrones, among others. Problem is, the ads seem to have left out an important fact about the new service. How consumers access it. In spring 2020, not long before the launch date, the HBO Max team holds a Zoom meeting. In the meeting, it's revealed that consumers don't understand how to get this new content.

19:56The problem is particularly acute amongst people who already subscribe to HBO Now. Many are confused if their HBO account will update or if they need to download a new app. Hate to say I told you so here, but remember when Disney Plus did its initial rollout? Remember those Wreck-It Ralph 404 screens and frustrated potential new customers? Distribution is often the Achilles heel of innovation. In tech and media alike, brand confusion is death. If your customers need a tutorial to understand your product, chances are it's not ready. Doesn't matter how good the product is if people can't access it easily, well, you've already lost half the battle.

20:41And maybe something more. Goodwill. There's confusion among potential new subscribers as well, compounded by the fact that WarnerMedia has failed to reach a deal with either Roku or Amazon to carry the app on their streaming devices. Roughly 80 million Americans use one of the two devices to stream content on their televisions, meaning 80 million potential customers won't be able to watch the app on their TVs on launch day. Even with these red flags, Stanky is determined to launch the app as scheduled on May 27, 2020. He's convinced that once HBO Max exists in the real world, consumers will understand the appeal and any kinks in the system can be worked out later.

21:33However, shortly before the launch, Stanky announces he's stepping down as CEO of WarnerMedia. It's part of a promotion plan for Stanky. He'll continue as COO of AT &T with the expectation that he'll soon be named CEO of the telecom giant. Former Hulu executive Jason Kylar is named as the new head of WarnerMedia. He takes over just three weeks before HBO Max debuts. There's little time for him to change the approach. And when launch day comes, it does not appear that consumers share John Stanky's clarity on the appeal of the service. In its first month, only 4.1 million people sign up, less than half of the 10 million who subscribe to Disney Plus within the first 24 hours that it debuted.

22:23User feedback is that the app is difficult to navigate, full of technical glitches, and all the various brands just feel like a mishmash, and not the good kind. There's CNN next to Cartoon Network, next to Turner Classic Movies. There are the Harry Potter movies, and the Rocky movies, and the Batman movies, and all of Looney Tunes, as well as Sesame Street. And since the Friends reunion special has been delayed, there's no must-see content driving subscriptions. Industry analysts call the app a dud and a missed opportunity. Never launch a new platform without a killer feature. In streaming, that means content, ideally exclusive, must-see content.

23:08No friends reunion? No frenzy. In the wake of the disappointing launch, Kyler makes a bold move. In December 2020, he announces that all of Warner Bros. movies slated for a theatrical release in 2021 will simultaneously be shown in theaters as well as on HBO Max. This includes major blockbusters like sci-fi epic Dune and Godzilla vs. Kong. This is a massive change to how studios typically distribute movies. Since the 1970s, distributors have operated with staggered, discreet windows. Traditionally, films were first released in theaters, then on home video, then cable, then network television. It was an effort to keep the various ways of watching a movie from competing with each other, therefore maximizing revenue.

23:58As physical media sales have declined, and with the increase in cord cutting, the windows have blurred a bit in recent years. But what Kyler is doing is shattering the window. Movie theaters and HBO Max will be in direct competition over the same film at the same time. In the eyes of industry observers, he's sacrificing box office receipts to boost HBO Max's numbers. This was the nuke the playbook moment. Sacrificing the box office to feed your own platform may get you a short-term subscriber boost with long-term fallout when it comes to consumer trust. And not just among consumers either. Remember Scarlett Johansson feeling blindsided when Disney decided to put Black Widow out simultaneously to theaters and onto Disney +, negatively affecting her payout?

24:48Got more than just a little bit of press, too. In the long run, what's this going to mean for your lifeblood, your A-list content? In the short term, the announcement does bring buzz to HBO Max. There's now a clear reason to subscribe to the service. And by early 2021, their subscriber numbers bump up to nearly 64 million. But they are still way short of their competitors. Netflix has surpassed 200 million subscribers, and Disney Plus is nearing 100 million. And the move infuriates theater owners, as well as Hollywood creatives, who feel their work is being disrespected. It seems like every step HBO Max takes results in a stumble.

25:35But there's one person who's watching HBO Max's struggle with a degree of satisfaction. Discovery CEO David Zaslav. And in early 2021, he decides it's time to make his move.

25:57Ready or not? Yep, the holidays are coming. And I'll be honest, I love having friends and family over. But I don't love realizing at the last minute that my serving pieces look like they've been through one too many dinner parties. Or that the guest room is more college dorm chic than holiday cozy. Know what I mean? Well, that's where Wayfair comes in. We just ordered some new serving plates. A new wreath for the door. A set of crisp new sheets. And suddenly the house feels just about guest ready. Even better. It didn't feel like a chore. It felt fun. But I've been here before, I'll be honest.

26:31My secret? The Wayfair app. What I love most is how Wayfair has literally everything you need. That's no exaggeration. I was surprised to find high-quality cookware that's perfect for hosting those big family dinners. And let me tell you something. Delivery was a breeze, free and fast, even for the larger items. Whether you're looking to spruce up your kids' rooms with festive touches or need new bedding for the guest room, Wayfair's got you covered. From Christmas trees and wreaths to inflatables for the yard, they're truly a one-stop shop for holiday prep. And the best part? There's something for every style and every budget.

27:07I can't wait to tackle more of my holiday home goals with Wayfair. It just makes getting ready for the season so much easier. Leaving more time to enjoy with the family. That's what it's all about. Get organized, refreshed, and ready for the holidays for way less. Head to Wayfair.com right now to shop all things home. That's W-A-Y-F-A-I-R dot com. Wayfair. Every style. Every home. When planning for your future, you want someone with a history of keeping their word year after year. For nearly 160 years, Pacific Life has been a trusted name in the industry. But that isn't just a number. It's experience that matters.

27:49It's 160 years of promises held, helping generations retire with confidence, protect their loved ones, and plan for whatever comes next. Whether you're looking for life insurance, employee benefits, or retirement income solutions, When your future is on the line, you want history on your side. And believe me, Pacific Life has been there, always there through changing times, always focused on your needs. Ready to secure your tomorrow? Ask a financial professional how Pacific Life can help you feel prepared for what's next. Pacific Life Insurance Company, Omaha, Nebraska, and in New York, Pacific Life & Annuity, Phoenix, Arizona.