AT&T gives HBO customers a free bonus with HBO Max, but finding new subscribers is the big challenge

Congratulations HBO subscribers! You're the big winners from AT&T's WarnerMedia Day presentation.

AT&T priced HBO Max, its signature streaming service, at $14.99 per month. That happens to be the current price of a standard HBO subscription. AT&T Chief Operating Officer John Stankey said WarnerMedia is working with pay-TV distributors to give current HBO subscribers access to HBO Max. AT&T will also offer HBO Max to all of its premium unlimited wireless customers and its top-tier home broadband subscribers for no additional cost. The service will launch in May 2020.

Stankey's goal is to get 50 million HBO Max U.S. subscribers by 2025. By pricing HBO Max identically to HBO, he has made the decision an easy one for the 34 million U.S. customers that currently get HBO. Even if high-minded HBO subscribers despise "The Big Bang Theory" and don't have kids clamoring for "Sesame Street" or DC comic book-themed movies and shows, there's probably something in the 10,000 hours of content, including 50 new original series by 2021, that a consumer will want for no additional cost. AT&T spent about two hours cycling through the myriad content available on HBO Max, ranging from the entire catalog of "South Park" and "The West Wing" episodes to a reboot of "Gossip Girl" to "Ellen's Home Design Challenge," an unscripted series featuring Ellen DeGeneres.

There are drawbacks to this strategy. If HBO Max renders HBO obsolete, the quality brand of HBO could diminish over time. AT&T acquired DirecTV in 2015 and has seen millions of Americans cancel the satellite service as it has struggled to convince consumers why they should continue to pay for what was once a premium brand. HBO is known for award-winning shows like "The Sopranos," "The Wire" and "Game of Thrones." While HBO will live on as a brand within the HBO Max application, it's possible consumers, over time, will view HBO Max as synonymous with HBO. "The Big Bang Theory" and Looney Tunes cartoons are not HBO.

The question is how many non-HBO subscribers will be compelled to sign up for HBO Max because of the new programming. AT&T is setting the bar low, projecting just 41 million U.S. subscribers by 2022. Considering HBO already has 34 million subscribers and AT&T is giving HBO Max away for free to potentially millions more, this seems like a target that won't be difficult to hit.

AT&T is aware of the challenges to gain new subscribers and is specifically tailoring new originals to kids, women and teens to try to entice a wider audience for HBO Max than it has for HBO. AT&T will launch 50 new original series on HBO Max by 2021, adding to the 38 series planned for HBO. That's almost 90 originals for HBO Max customers. HBO is spending $2 billion right off the bat on the new programming.

HBO Max will actually become profitable in 2025 when 50 million Americans are subscribing to HBO Max, according to AT&T. AT&T's bet, as outlined here, is that the acceleration of cable cancellations will help push more Americans toward streaming services. HBO Max is currently the most expensive of the major streaming offerings at $14.99 per month, topping Netflix's most popular $12.99 plan, Hulu's ad-free $11.99 service and Disney's $6.99 Disney+.

It's hard not to view HBO Max as a gift to HBO subscribers. Long-term brand concerns aside, customers that pay for HBO should be overjoyed with a slew of new content for free — at least some of which will appeal to almost everyone.

But to pay for all the new content, AT&T will eventually need millions of new paying subscribers in an environment with its entire slate of competition offering products at a lower price.

"There are three pillars required for success in streaming: premium content, technology platform and marketing and distribution," Stankey said at the WarnerMedia presentation of HBO Max on Tuesday. "Only AT&T enters this space with solid footing on all three."

We'll see.

Follow @CNBCtech on Twitter for the latest tech industry news.

Leave a Reply

Your email address will not be published. Required fields are marked *