HBO is about to lose 5 million customers, and Andy Forssell isn’t worried.
Forssell, the general manager of HBO Max, was a chief advocate for the company’s decision to drop out of Amazon’s channels program, a system the retailer uses to sell different streaming services on top of its Prime video.
Channels has been a big success for Amazon, which gets to offer its customers hit shows from HBO, Showtime, Starz and Sundance TV within its existing video app provided customers pay an additional fee. The combination of “Fleabag,” “Game of Thrones” and “Billions” all at once is a pretty good draw, and reduces the hassle of toggling between different apps.
HBO has amassed about 5 million subscribers using channels, and losing those customers will impact growth in the current quarter. HBO now has about 67.5 million subscribers worldwide across the premium channel and streaming, the majority of which live in the U.S.
But channels has become a headache for streaming services that now want to have a direct relationship with their customers, and don’t want to allow a third party to control the user interface and billing.
“It’s important for us to own the customer,” Forssell told me last week. “If the viewer is in the app, we can tailor the home page to them. We can tailor what they show them next. We can respond to that in real time.”
HBO’s decision is the latest sign of a newfound willingness to accept short-term pain for long-term gain at media companies once focused on quarterly results. ViacomCBS, Comcast, Disney and WarnerMedia all need Wall Street to know that streaming is their top priority. And Wall Street is willing to forgive certain speed bumps if they believe the company can pull off the transition from cable to the web.
Joining Amazon channels made some sense to Time Warner back when it was just starting to stream. Time Warner was used to having pay-TV companies like Comcast and Dish sell HBO on its behalf. It was a wholesaler, not a retailer, in industry parlance.
Building an app, handling customer service, analyze churn and retention and paid marketing schematics… this was all gibberish (and uninteresting) to HBO during the Jeff Bewkes, Chris Albrecht and Richard Plepler era.
Amazon offered media companies an easy way to scale up customer base, and it was happy to substitute for the cable companies online. In return, it got a cut of the sales and an opportunity to treat HBO’s biggest hits as though they were its own.
But in time, HBO and others realized they’d made a mistake. They needed a direct relationship with their own customers.
Netflix’s success wasn’t just rooted in being first, or having “House of Cards.” It knew what shows customers watched after they signed up, or the exact moment in an episode they’d stopped watching. It could create new ways to get you to watch the next episode. Or tease a new show.
HBO couldn’t do any of this via Amazon. Under the channels deal, Amazon controls the customer.
This all seems obvious now. But to consider just how focused HBO was on linear TV back then, consider that 2014 it licensed most of its catalog to Amazon. So even though HBO had a streaming service (HBO Go) and was about to launch another (HBO Now), it was letting Amazon have “The Sopranos” and “Sex and the City.”
Getting out of the channels deal wasn’t easy. HBO Max was unavailable on Amazon devices for several months last year in large part because of HBO’s desire to withdraw. Even now, Amazon reserves the right to communicate with HBO’s customers about how they can continue to watch these shows. It’s unclear if Amazon will help HBO in moving the customers over to Max, but it doesn’t have a lot of incentive to do so.
Forssell says falling out of channels won’t prevent the service from hitting its year-end targets of more than 70 million subscribers. HBO Max has had a strong year thanks to the combination of consistent original programming like “Mare of Eastown” and “White Lotus,” as well as the full Warner Bros. slate of movies.
Yet while media companies are shifting the focus to streaming, they can’t fully abandon their old ways. HBO still licenses its shows to other companies in Canada, the UK and Australia, three of the biggest markets for U.S. streaming services. Netflix has more than 20 million customers in those places, according to research estimates, which vary wildly.
HBO Max won’t have a chance to sign up customers in any of those markets for years to come, which will limit its ability to compete directly. Those deals predate the current leadership of WarnerMedia and HBO Max, and I suspect Forssell and his boss Jason Kilar would not have signed them.
“As you see agreements in other territories come up, were more likely to lean into direct-to-consumer posture than not,” Forssell told me. It’s better late than never. – Lucas Shaw Bloomberg