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Power

The real streaming wars: Why the launch of HBO Max will miss many customers

The rise of streaming and cord-cutting have shifted power from traditional operators to the Amazons and Rokus of the world.

HBO Max

AT&T President and COO John Stankey talks to investors about WarnerMedia's development of HBO Max at Warner Bros. Studios on Oct. 29, 2019, in Burbank.

Photo: Presley Ann/Getty Images for WarnerMedia

Millions of HBO subscribers are getting a welcome surprise Wednesday when the HBO Now app on their smart TVs and phones automatically becomes an app for HBO Max, WarnerMedia's new $15-a-month streaming service. The service will give them access not only to HBO franchises, but shows like "Friends," "South Park" and "Rick and Morty," as well as HBO Max originals, including a "Gossip Girl" remake.

For quite a few customers, though, the transition won't be as smooth. Because of unresolved contractual agreements, anyone who has subscribed to HBO through Amazon, Roku, Comcast or a few other partners will be missing out on all that new content. And while HBO Now is effectively being phased out this week, the network will have to keep HBO Go up and running as a zombie service to give Comcast customers a way to stream.

All of this is more than just a branding nightmare. It's also a reminder of how hard it is for even a big network like HBO to transition to streaming. Pundits have long focused on the growing competition within the industry, dubbing it the "streaming wars." However, some of the most consequential conflicts in this new age of television aren't between Netflix, HBO and Disney, but between the streaming services and the tech companies that have quickly become the new intermediaries, controlling the platforms and devices that deliver movies and TV shows to our homes.

'A blessing and a curse'

HBO has long struggled to brand its streaming efforts. The network first launched HBO Go as a companion service for existing pay TV subscribers a decade ago, long before Netflix was even on the horizon as a threat. Then, in 2015, it added HBO Now as a dedicated streaming service for cord-cutters, but it kept the brand separate to appease existing cable and satellite TV distribution partners.

When WarnerMedia detailed its plans for HBO Max last fall, the branding of the service was widely met with head-scratching. Yet another service? During a recent briefing with Protocol, Sarah Lyons, WarnerMedia's SVP of product experience, admitted the situation wasn't optimal and blamed HBO's long legacy in the streaming space — and the multitude of contractual agreements that come with it. "It's unfortunately a blessing and a curse," she said.

This week's launch was meant to clarify a lot of that confusion by phasing out HBO Now and slowly transitioning customers away from HBO Go. For that to work, WarnerMedia needed distribution agreements with cable companies as well as online platforms. And while Apple, Google, Samsung, Sony, Verizon and others have signed up to distribute HBO Max to their customers, others haven't.

Roku is said to be close to a deal, but WarnerMedia has been unable to come to an agreement with Amazon. The ecommerce giant has been distributing HBO online through Amazon Channels, a dedicated marketplace for subscription video services that is tightly integrated into streaming adapters and smart TVs running Amazon's Fire TV platform. Prime Video subscribers can easily add HBO with a few button taps of their Fire TV remote.

Amazon fees and ad money fuel dispute

The fissures between WarnerMedia and Amazon are complex and not easily resolved. By some estimates, Channels is responsible for roughly half of all HBO online subscriptions. Amazon takes a cut of 30% to 50% for any subscription service it resells through Channels, according to multiple industry insiders. HBO is said to be on the lower end of that range, but that still leaves Amazon with an estimated nine-figure revenue share per year.

Then there's the user experience. HBO's existing apps have largely been stuck in the past, forcing consumers to navigate through large, alphabetic catalogs to find shows or movies. For the Max service, HBO invested in a more curated approach designed to keep consumers hooked to its own shows. The network also innovated on child-safety and is looking to roll out joint profiles for couples, among other bells and whistles, in the coming months.

Amazon has long disaggregated HBO content, allowing Channels customers to watch HBO content directly through its own apps and devices without ever installing any of HBO's apps. This not only makes it harder for HBO to stand out from the crowd, but it renders the service a lot less sticky and allows Amazon to recommend its own movies and shows against HBO shows.

The biggest point of contention between the two companies, according to industry insiders, is advertising. Much like Roku, Amazon has begun to build out its own connected TV ad business. Ad-supported streaming services that want their app on Fire TV devices must share up to 20% of their ad revenue with Amazon, according to a source with direct knowledge of these arrangements.

HBO does not run ads against its programming, but a number of WarnerMedia's other streaming apps and services do. AT&T also has its own internet-based TV service, AT&T TV Now, which offers a cable-TV-like experience with programming from broadcast and cable networks. Live TV subscription services like these are required to fork over as much as 50% of ad revenue, according to our source, who declined to discuss the subject on the record because of confidentiality agreements.

Cord-cutting and the new kingmakers

Disagreements between TV networks and distributors are nothing new. Networks have frequently squabbled with cable and satellite companies in the past, occasionally even taking their feeds off the air to prevail. But with the ascent of streaming, and the acceleration of cord-cutting, power has been shifting away from these traditional operators and toward the Amazons and Rokus of the world.

No one knows this better than AT&T. When the telco acquired DirecTV in 2015, it ended up with a total of 26 million pay TV subscribers. By the end of the last quarter, that number had declined to 19.4 million. AT&T lost a whopping 4 million subscribers in 2019 alone and is expected to be hit hard this year as well: In Q1, nearly 900,000 of the company's customers cut the cord. With a looming recession, the next three quarters may not look any better.

Some believe content companies like WarnerMedia should simply stand their ground and reject aggregation models like Amazon Channels altogether. "When you are holding some of the world's most iconic content, we suspect HBO is unlikely to waver on HBO Max," wrote Lightshed analyst Richard Greenfield in an investor note this month. "If AT&T/WarnerMedia have any hope of creating a true Netflix-like competitor … they simply cannot cave to channel platforms on HBO Max, no matter the short-term pain incurred."

However, it's anything but certain that WarnerMedia has the upper hand in this conflict. Amazon's Fire TV products surpassed 40 million users at the beginning of the year, and Roku crossed a milestone of 40 million active accounts in Q1 of this year, company figures show. Together, the two companies have an estimated streaming device market share of 70%, according to estimates from Parks Associates.

In other words: Platform operators like Amazon are the new kingmakers — and the battles over carriage on their platforms are the real streaming wars.

NOTE: Following the publication of this story, an Amazon spokesperson sent the following statement about its dispute with WarnerMedia: "With a seamless customer experience, nearly 5 million HBO streamers currently access their subscription through Amazon's Prime Video Channels. Unfortunately, with the launch of HBO Max, AT&T is choosing to deny these loyal HBO customers access to the expanded catalog. We believe that if you're paying for HBO, you're entitled to the new programming through the method you're already using. That's just good customer service and that's a priority for us."

Microsoft wants to replace artists with AI

Better Zoom calls, simpler email attachments, smart iPhone cases and other patents from Big Tech.

Turning your stories into images.

Image: USPTO/Microsoft

Hello and welcome to 2021! The Big Tech patent roundup is back, after a short vacation and … all the things … that happened between the start of the year and now. It seems the tradition of tech companies filing weird and wonderful patents has carried into the new year; there are some real gems from the last few weeks. Microsoft is trying to outsource all creative endeavors to AI; Apple wants to make seat belts less annoying; and Amazon wants to cut down on some of the recyclable waste that its own success has inevitably created.

And remember: The big tech companies file all kinds of crazy patents for things, and though most never amount to anything, some end up defining the future.

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Mike Murphy

Mike Murphy ( @mcwm) is the director of special projects at Protocol, focusing on the industries being rapidly upended by technology and the companies disrupting incumbents. Previously, Mike was the technology editor at Quartz, where he frequently wrote on robotics, artificial intelligence, and consumer electronics.

People

Amazon’s head of Alexa Trust on how Big Tech should talk about data

Anne Toth, Amazon's director of Alexa Trust, explains what it takes to get people to feel comfortable using your product — and why that is work worth doing.

Anne Toth, Amazon's director of Alexa Trust, has been working on tech privacy for decades.

Photo: Amazon

Anne Toth has had a long career in the tech industry, thinking about privacy and security at companies like Yahoo, Google and Slack, working with the World Economic Forum and advising companies around Silicon Valley.

Last August she took on a new job as the director of Alexa Trust, leading a big team tackling a big question: How do you make people feel good using a product like Alexa, which is designed to be deeply ingrained in their lives? "Alexa in your home is probably the closest sort of consumer experience or manifestation of AI in your life," she said. That comes with data questions, privacy questions, ethical questions and lots more.

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David Pierce

David Pierce ( @pierce) is Protocol's editor at large. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.

Power

What TV remotes tell us about power struggles in streaming

TV remote controls are a major battlefield in the TV wars, which are fought one branded button at a time.

LG's 2021 smart TV remote control features a total of three buttons for voice control.

Image: LG

Don't touch that dial: As TV manufacturers are unveiling their 2021 models at this year's virtual CES, they're also giving us a first look at the remote controls that will be shipping with those big, shiny and smart TV sets.

There were a few surprises. LG's remotes come with built-in NFC to transfer videos from mobile devices to the TV, and Samsung's remotes incorporate solar cells that are meant to reduce battery waste. The new crop of 2021 TV remotes also perfectly encapsulates the conflicts and power struggles in the TV industry, from streaming services vying for attention to voice assistant platforms' fierce competition.

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

Power

Roku is becoming the most powerful company in streaming

A growing user base will give it even more power in content negotiations.

Roku's emerging as one of the streaming war's biggest winners.

Photo: Luke Sharrett/Getty Images

Roku's bet on smart TVs is paying off: Seven years after the company first began licensing its operating system to TV manufacturers, it has become a market leader in North America. Roku and its hardware partners sold more smart TVs in the U.S. in 2020 than competitors like Samsung, LG and Vizio, according to data from the NPD Group released by Roku on Friday.

Roku TVs had a 38% market share in the U.S. and a 31% market share in Canada, according to NPD's data. Roku also announced earlier this week that it had ended 2020 with 51.2 million active accounts, adding around 14 million accounts over the past 12 months. Altogether, consumers streamed 58.7 billion hours of entertainment through their Roku devices in 2020, according to a news release.

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

Power

LG has acquired TV ad tech startup Alphonso

Alphonso could help LG build out its smart TV advertising business.

Alphonso could help LG monetize its TVs with ads.

Photo: LG

Korean consumer electronics giant LG has acquired a controlling stake in TV advertising measurement startup Alphonso, investing more than $80 million in the company. LG announced the acquisition Wednesday, a day after Protocol first reported that a deal was imminent. With the acquisition, LG is looking to beef up the advertising business on its smart TV platform and better compete with companies like Samsung, Roku, Amazon and Vizio.

"Our investment in Alphonso is a key component of our digital transformation strategy focusing on AI, big data and cloud to fundamentally change how consumers interact with their devices," said LG Home Entertainment President Park Hyoung-sei. "With Alphonso's TV data analysis capabilities, LG will be able to provide even more customized services and content to consumers and we are proud to welcome Alphonso to the LG family."

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Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

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