AT&T’s WarnerMedia last month revealed the three-tier service structure for its upcoming streaming product, and one industry analyst sees the plan as a big mistake.
MoffettNathanson analyst Michael Nathanson said the structure for WarnerMedia’s direct-to-consumer streaming service, coupled with the company’s plans to continue licensing its content on a nonexclusive basis, represents a “major strategic error.”
“For the life of us, we can’t figure out why the company wouldn’t use the HBO brand and app as their single global platform and populate their HBO Now and HBO GO apps with library content like ‘Friends,’ ‘The West Wing’ or more Warner Bros. TV library content,” wrote Nathanson. “Most observers believe that consumers will select about three to four SVOD services and HBO is already within that consideration set. Even if AT&T is getting $100 million a year for ‘Friends,’ HBO would have only needed to add 833k incremental subscribers to their service under an HBO-exclusive only approach.”
Many details about WarnerMedia’s streaming service are still under wraps but last week AT&T CEO Randall Stephenson spoke at a UBS investor conference and offered up a few nuggets about the service.
He said the first layer of the service will look a lot like the movie library available today on HBO. The second layer will include HBO’s scripted original series like “Game of Thrones.” Then the third layer will take advantage of the Warner Bros. IP library including movies and scripted series.
Nathanson’s comments about WarnerMedia come packaged in a research note that touches on big media conglomerates’ direct-to-consumer and licensing plans and how that will affect Netflix. He noted that Disney’s approach with both Disney+ (launching in late 2019) and Hulu will be to pull back content and sacrifice licensing revenue in exchange for streaming subscribers.
“The differences in approach will mean that some companies like Disney will need to willingly forgo licensing revenue in order to develop a loss-making subscription business that will only be worthwhile if fully scaled,” Nathanson wrote.
With WarnerMedia, Disney, Fox and others reshaping their content licensing strategies in 2019, Netflix is bound to be impacted. According to MoffettNathanson, Netflix currently hosts 22 of the top 50 shows according to IMDb, and only five of those 22 shows are made in-house by Netflix. Despite that, the firm sees positive revisions in Netflix’s outlook.
MoffettNathanson raised its 2018 domestic paid subscriber additions estimate for Netflix from 4.1 million to 5.8 million, up 42%. The firm also increased its estimates for Netflix’s domestic revenues and international paid subscribers. But it also lowered its forecasts for international ARPU, international revenues, aggregate operating profits, net income and EPS.