What Should HBO Cost? The Question Is Giving AT&T Executives a Headache

With its acquisition of Time Warner last year, AT&T was on its way toward creating a streaming service that will one day be the exclusive online home for “Game of Thrones” and the blockbuster film franchises centered on Wonder Woman, Batman and Harry Potter.

The $80 billion deal gave the phone giant ownership of the Time Warner networks CNN, HBO, Turner Broadcasting, as well as the Warner Bros. film and television library — enough content to allow the company to stake out a two-front strategy of competing against traditional rivals like Verizon and T-Mobile while also challenging Netflix and Hulu.

But AT&T’s ambitions for its streaming service, set for an early 2020 debut, have hit a snag on a small but important detail: How much should it cost for subscribers?

The source of the problem is HBO, which has seven million online customers. The premium cable network costs $15 a month — a price that’s practically locked in because of contracts with distributors like Comcast and Dish.

That price is higher than the amounts charged by any of AT&T’s future streaming rivals, which has frustrated executives as they try to set a competitive price, according to three people familiar with the company’s digital strategy.

Netflix’s standard plan costs $13, Hulu’s commercial-free version goes for $12, and Amazon offers video with its Prime subscription at $119 a year, or just under $10 a month. Apple has considered making its streaming product, scheduled for a fall rollout, free to Apple customers. And the Walt Disney Company will charge $7, with a discount for customers paying a year in advance.

“HBO at $15 looks unreasonable compared with Disney, which has a stronger content lineup,” said Craig Moffett, a co-founder of the research firm MoffettNathanson, referring to Disney’s ownership of Marvel, Pixar and Lucasfilm, studios that have dominated the box office.

The job of getting the AT&T service up and running has fallen to John Stankey, a veteran of the phone company who now runs WarnerMedia, the AT&T division that includes the old Time Warner companies. Mr. Stankey appointed a council led by Robert Greenblatt, the former head of entertainment at NBC and current chairman of entertainment at WarnerMedia. Also part of the crew are Kevin Reilly, the Turner head who is in charge of programming for the service; and Jeremy Legg, a longtime Turner executive who is leading technology.

Last week two new members joined the group: Tony Goncalves, the chief executive of AT&T’s Otter Media division, and Andy Forssell, a former head of Hulu. Mr. Forssell took the place of Brad Bentley, an AT&T executive who had clashed with Mr. Reilly and others, the people said.

While the WarnerMedia executives look to set a price for the service, they are aware that any move to offer HBO more cheaply could upset their cable partners, threatening the revenue they receive from these agreements.

Adding to the conundrum: WarnerMedia, which declined to comment for this article, wants streaming content with mass appeal, the better to please AT&T’s 148 million phone customers. But HBO, the property with the best head start in streaming, thanks to its HBO Go and HBO Now services, tends to attract a select audience.

Occasionally, the network has landed critical successes that also enters the mainstream, like “The Sopranos” and “Game of Thrones,” but it’s not easy to find mass-market hits that suit the HBO brand. A coming “Game of Thrones” prequel series has a chance to recreate the magic, but Hollywood is littered with forgettable follow-ups.

WarnerMedia plans to offer several streaming tiers, including one with ads, but the main offering is likely to include HBO fare along with films and TV shows from Warner Bros. (everything from “Casablanca” to “The West Wing”) under a new brand name.

Matthew Ball, the former head of strategy for Amazon Studios, said HBO made sense as the anchor of the planned service — “Not even Disney is as well positioned, as it’s starting from zero,” he said — but the pricing problem may be hard to overcome.

The company could end up charging those who already pay for HBO online as little as nothing to subscribe to the streaming service — or it could include it as a throw-in for any new HBO subscription, the people said. WarnerMedia also has the option of lowering HBO’s retail price everywhere it’s sold (including on cable), but that would mean less revenue, which could hurt at a time when Netflix and Amazon are spending freely on content.

WarnerMedia has made a few missteps on the path toward its digital future. At a town-hall meeting with HBO employees last June, Mr. Stankey talked about the need to increase the volume of programming to make the network bigger and broader. That caused some people inside and outside the company to worry that AT&T would dilute a distinctive brand.

But the network was already working under a plan put in place under HBO’s former chief executive Richard Plepler that would increase its original content by 50 percent, to 150 hours this year. And AT&T has largely stayed out of programming decisions, the people said, quelling concerns that the Dallas-based telecommunications company would apply its spreadsheet approach to Hollywood.

Details such as which shows to keep exclusive to the service and whether some original series produced for WarnerMedia’s cable channels, such as “Snowpiercer,” should be streamed before appearing on television has touched off debates, the people added.

WarnerMedia has a valuable property in its back pocket — the unusually durable sitcom “Friends,” which has proved seemingly unkillable even 15 years after it aired its finale on NBC. It was the second most-watched program on Netflix last year, according to an analysis by Nielsen. That explains why Netflix was willing to pay around $100 million to be the show’s exclusive streaming home through the end of the year.

As a streamed show, “Friends” is likely, after much debate, to end up exclusive to the WarnerMedia service, the people said. That would come at a cost. The sitcom would bring in some $75 million a year, if the company allowed Netflix to continue streaming it.

WarnerMedia has a separate television production arm that will still create shows for other networks and streamers, as well as for its own service. Mr. Reilly has also cut deals with other TV companies to create originals to be streamed by WarnerMedia, such as “Love Life,” a 10-episode comedy starring Anna Kendrick, which Lionsgate TV will produce.

Disney also plans to move its content off Netflix, which means hits like the Marvel megalith “Avengers: Endgame” will be available only on its own service. Disney expects to forgo $150 million this year alone to keep its content away from other streaming platforms.

It’s an expensive but popular strategy that could lead to what some in the industry have described as a content cold war. Hollywood has long operated on a delicate balance between creators and distributors. Now the divisions between the two are breaking down, and consumers are likely end up paying for multiple online services to get what they want.

And that may lead to something they don’t want: a streaming bill as large as a cable bill.

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