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HBO and Netflix: From ‘Friends’ to Foes

Tara Lachapelle
(Bloomberg Opinion) -- The TV-network giants went through ratings hell. It’s time for Netflix’s own version of that. After the market closed on Wednesday, Netflix Inc. reported that it lost 126,000 U.S. streaming customers during the second quarter, which appears to be the first time it’s ever done so. Global membership growth was also well short of management’s own expectations, with 2.7 million net sign-ups versus an anticipated 5 million. The company blamed its uninspiring results on subscription price increases and a less-enticing mix of movies and TV series. While it signaled that “more typical growth” and better content is in store, shares of Netflix sold off 12%, erasing $17 billion from its market value. This marks a turning point in how investors view the future of Netflix vis-a-vis its biggest emerging threats, Walt Disney Co. and AT&T Inc. In recent years, the popularity of Netflix has been a chief reason for the accelerated drop in cable subscriptions and viewers tuning out traditional live TV. As investors were entranced by the video-streaming app’s rapid growth and awarded the company an absurdly rich valuation, companies such as Disney and Time Warner (now called WarnerMedia, a unit of AT&T) were punished by shareholders for their audience shrinkage.Those media giants’ audiences are still shrinking (see next chart), and their businesses still rely on TV commercials and cable fees to drive profit. But they have managed to change the narrative so that more attention is paid to their own streaming opportunities. Nov. 12 is the launch date for Disney+, which Disney plans to bundle with ESPN+ and Hulu for fans who want all three services. Shortly thereafter, AT&T’s WarnerMedia will introduce HBO Max, a souped-up version of the HBO app that will contain Turner network programs and Warner Bros. films. Given the relatively low price of Disney+ at $6.99 a month and the quality of Disney and HBO/Warner content, both products have the potential to lure a considerable number of streamers away from Netflix.(1)This means Netflix investors will become even more obsessed with its quarterly subscriber count. They’ll also want more real data as far as how many people are watching Netflix’s costly originals – much in the way investors have picked apart the traditional media companies’ Nielsen viewership ratings. By now you’ve heard that “Friends” is moving to AT&T’s HBO Max next year, and that Comcast Corp.’s NBCUniversal is reclaiming “The Office” in 2021. Those are the most-watched shows on Netflix, so their expiration dates create a sense of foreboding.As my colleague Shira Ovide alluded to Wednesday, Netflix may be drifting too far from what it made it so attractive in the first place: being a constant bazaar of binge-able video entertainment. By blaming its own content slate for last quarter’s weak showing, Netflix is saying that it’s not all that different from HBO, which is dependent on a select few hit programs and goes through lulls when there aren’t new episodes. I’ve written that Netflix has the benefit of already being the “base” streaming service for many people, but that could change if Netflix becomes less of a one-stop shop and other services seem to offer more bang for your buck. Disney+ launch day is just four months away. And the closer we get to D-Day, the more skittish Netflix shareholders will be. Cable-network operators know all too well what that’s like. (1) Apple TV+ is also coming later this year to challenge Netflix.To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.netTo contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

(Bloomberg Opinion) -- Netflix Inc. and the soon-to-come HBO Max app need a little of what each other has. In the meantime, consumers may be the ones who lose out.  

If you’re like me, you’ve started to realize that despite a vast number of video-streaming apps, none on its own offers the ideal mix of content best suited to your tastes. And if you’re like me, paying for more than a couple of these subscriptions would feel excessive and expensive. But the media giants behind these products sure aren’t making it an easy choice.

AT&T Inc.’s freshly acquired WarnerMedia division announced on Tuesday that HBO Max, its Netflix copycat, will launch next spring and exclusively feature the hit show “Friends,” which it’s yanking from Netflix. The sitcom hasn’t had new episodes in 15 years, but it’s a large part of Netflix’s lifeblood. Subscribers spend more time watching “Friends” than any other program on the service except “The Office,” according to Nielsen data for 2018. (Comcast Corp.’s NBCUniversal is taking “The Office” off Netflix, too, in 2021.)

As services like HBO Max and Walt Disney Co.’s Disney+ hit the market, it’s crucial for Netflix to try to maintain its standing as the necessary “base” streaming package – the minimum that most people need. Without “Friends,” “The Office” and other popular licensed content, Netflix risks becoming an add-on service instead – nice to have but not a requirement. Sure, it’s building a strong franchise in “Stranger Things,” but of Netflix’s top 20 programs last year by time watched, only six were Netflix originals, the Nielsen data show.

HBO Max’s new promotional video shouldn’t exactly wow people, though. Viewers have probably already seen most of the content. The 43-second teaser features clips from “Game of Thrones” and “Friends” twice, as well as “Wonder Woman,” “A Star Is Born,” and “Sopranos,” alongside some current shows that WarnerMedia owns, such as “Big Little Lies” and “Impractical Jokers.”

On the one hand, WarnerMedia may just be seeking at this stage to remind people of the caliber and expansiveness of its portfolio of TV and movie productions. And the company did list a slate of HBO Max original series and movies featuring stars such as Kaley Cuoco, Anna Kendrick and Reese Witherspoon. Even so, it’s hardly the grand entrance HBO Max needs to make and demonstrates why more time is needed to fill out the offering, making this promo premature.

HBO Max is expected to cost a couple dollars more than HBO Now, the $15-a-month current direct-to-consumer version of the premium network. Based on what it’s teased so far, that’s not the best bang for a buck. Netflix’s monthly fee is $13. The Disney+ service launching in November will be $7 a month, or $70 for a year upfront, for access to content from Marvel, “Star Wars,” Pixar, National Geographic and other Disney brands, including originals that are in the works. 

With Disney removing its content from Netflix and WarnerMedia now stripping “Friends” from the service, the traditional media companies are drawing lines of studio loyalty where none quite exists as far as consumers are concerned. What makes Netflix great is that it aggregates content from various places to create a dense and diverse library. It’s a good value because there’s always something to watch. That’s where HBO Max could fall short if it doesn’t have enough fresh material to hook subscribers used to bingeing on Netflix. But Netflix also needs to step up its quality if the studios that supply its best content are severing ties. It needs more “Stranger Things.”

A major reason consumers have been switching from cable packages to streaming apps is to save money. So for many, deciding which app to choose will come down to price. The complexity of having to toggle between various apps and trying to remember what content lives where is also a turnoff. The introduction of HBO Max and Disney+ may only exacerbate that.

Wouldn’t it be great if there were a way to just package all these services together in a single monthly subscription? We could call it Cable Max.

To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

For more articles like this, please visit us at bloomberg.com/opinion

©2019 Bloomberg L.P.