Managing Subscription Partnerships for HBO Max Across Multiple Channels
Talking with WarnerMedia’s Molly O’Connor
Much has been written about the so-called streaming wars. The market for streaming video content is crowded with players, each with unique strengths from Netflix‘s digital native early adopter status to the platform power of Apple and Amazon. To the highly specific and valuable content of niche players like Crunchyroll or the History Channel whom we profiled on this show. Anyone interested in subscription models can learn a lot from understanding the diverging strategies of streaming players, many of whom number among the most powerful companies in the world.
Molly O’Connor leads business planning and strategy for WarnerMedia’s sales and distribution across HBO Max, Cinemax, and Turner networks for all US distribution partners. She is responsible for managing the sometimes-competing demands of the consumers, cable and satellite partners, and the app stores. Weaving these disparate products and partners into a single cohesive strategy. In our conversation, we discuss how to think about balancing direct and indirect channels, how a subscription offering can achieve strategic and/or financial objectives and the nerdy world of subscription math.
The following interview is adapted from my podcast, Subscription Stories: True Tales from the Trenches.
Robbie Baxter: You launched HBO Max and it was a strategically important channel for WarnerMedia but far from the only thing on your plate. Can you bring me back to that moment and share the story of that launch?
Molly O’Connor: It’s interesting in the streaming space with all the different service launches because every company is starting from a different place. In the case of WarnerMedia, we had a loyal and engaged HBO Max subscriber base. They were used to watching HBO on linear and on-demand, their cable satellite or through virtual MVPD digital channels. They were used to paying a premium price for HBO content. In a lot of ways, that was a great place to start from. We had people who are willing to pay for this product that they loved.
At the same time, the focus was on expanding beyond the HBO universe in terms of content offering but also to habituate the user to watch content in the app and get into the app environment. For us, when we were we were back at launch, there was a ton of focus on getting our distribution deals done before launch, which is something every company goes through down to the final minute. There was also this piece of planning for launch with our partners and getting everyone aligned on the same framework of what we were trying to achieve.
Robbie Baxter: Historically, you have all these partners- the cable companies, the direct TVs, and so on. Now you have these newer channel partners who you already know through HBO Go and HBO Now. Now you have a third offering, HBO Max. My head is spinning. There are all these different ways that you can access the same excellent HBO content. There are a lot of people who want to be the primary way that you get access to your HBO content. You’re Molly in the middle. First of all, you’re trying to figure out for yourself and the organization, how do we think about these partners? How do we accommodate their concerns? They’re concerned that you’re bypassing them with a direct subscription. How do you manage that?
Almost more importantly, how do you communicate that to your fans so that they know what to do. You have both strategic and communications challenges with all of these partners who I would imagine were nervous because it’s like the musical chairs and the music goes on again. It stops and everybody is scrambling to say, “Who has the relationship with the customer? Do I still have an important role?”
Molly O’Connor: I was pleasantly surprised. Within the space, whether it’s an app store partner, cable satellite distributor, everyone sees and knows that customers are streaming more as their method of consuming content. Many of our bigger MVPD partners have their strategies leaning into that trend and setting themselves up for success, whether that be focusing on broadband, knowing that video packages are trending a certain way but people are always going to need internet. How do you set yourself up for success to provide consumers with the content that they’re looking for but still sell the core services that they want to sell?
With several of the partners, that was collaborative. We found ways to fit in with their objectives. In some cases, they might have an operating system device platform that they’re trying to roll out. In that sense, having the HBO Max app helped them. In other cases, they’re trying to push their new services to be app-based services. Working through the details of what are you trying to get the user to do and making sure both sides are comfortable with that. So far, it’s gone well across the board. For customers, awareness was a big piece of this. There was about a month post-launch where, frankly, for logistical and other reasons, we did still have HBO Now, HBO Go, and HBO Max in the market.
Wall Street is still figuring out how to value the impact or think about subscription businesses.
Robbie Baxter: Can you explain what those three are? Why do you have three?
Molly O’Connor: The good news is we no longer have three. We have HBO Max. For a time, we did have the three. It takes time when you have legacy products that multiple different consumers use and different partners are integrated with. It takes a bit of time. Sometimes it winds down those products and switches over to the new one from a logistical perspective and also getting certain distribution deals done can hold that process up as well.
For readers who aren’t familiar, HBO Go was the companion app for HBO on cable and satellite providers. You have HBO and Comcast. You could use your Comcast credentials to log into HBO Go and all the HBO content was there. HBO Now was our OTT subscription product. You subscribe to that directly and have all the HBO content. All the HBO content that you love, all of it is in HBO Max but then there’s so much more content from the WarnerMedia family, Warner Brothers Studios and network. The theatrical studio and Warner Brothers TV. You have a lot of Turner content and properties and new Max Originals.
HBO Max has acted as both a place to watch your HBO content digitally. It’s similar to how HBO Go did but it’s so much more than that because there’s so much extra content that’s only available in the app. Ultimately, we wanted to whittle it down to that one app and it took a little bit of time but we got there. I spent a lot of time on marketing and helping explain to customers what this product was, how it was different, and why they should use it. To your point, they didn’t need to spend anything else to get it. By being an HBO subscriber, they already have access to it.
Robbie Baxter: It’s such a good story and instructive for the readers on how you journeyed from, “Most of our customers are going through a third party. We’re making the app as a companion. If you don’t have one of those services and you want HBO, we have an app for that.” To then saying, “This is part of our cohesive, integrated strategy. We’re going to give you access to many of our properties, a lot of content, and we’re going to give it to you in whatever way you want.” A lot of it is about your journey of experimentation with direct-to-consumer and with having an app. That’s fascinating.
It is messy on your way there. It’s interesting the way that you have brought your consumers along. One of the questions that come up and what I asked Piper Rosenshein who was a guest from A&E Networks and the History Channel is when you look at the direct-to-consumer behavior. What have you learned about your fans that maybe you hypothesized but didn’t know? Was there anything new that you learned when you started getting all of this rich data?
Molly O’Connor: One of the things that we’ve learned is that there’s a lot of talk about how does a customer viewing in one channel affects another channel? One of the things we’ve discovered through this process is that customers are comfortable watching where they’re watching for the time being. As long as you make yourself available in all those places, that’s what’s crucial in terms of driving engagement. There’s not necessarily as much of a cannibalistic effect as people think.
People always talk about the tension between theatrical windows versus streaming windows. Especially with Godzilla vs. Kong, what we’ve seen is that it had a monster performance, no pun intended, at the box office but did unbelievably well for us in terms of HBO Max subscription and viewership as well. No one knows the answer to what true cannibalization looks like across channels. The story is better than probably what you see written about. Customers want to view where they want to view. If it’s available in all those places, all boats rise.
Robbie Baxter: I feel like this is one of the big concerns that organizations have, not just in the streaming world but in news and education. If we have online courses, people will stop going to our universities. All of those questions. Over and over again, what I see is it deepens the relationship. Whether that’s entertainment, professional, or educational, the content that they value, they want it where they want it and wherever they are. If they want it, they want it accessible. It deepens the relationship. It’s not a zero-sum game. That’s been a big surprise for a lot of organizations.
Molly O’Connor: Going back to the HBO Go, HBO Now, and HBO Max conversation, that is one of the differences for us versus certain other companies that came from a different place in the streaming world. Some of them started from scratch. Whereas we were a bigger legacy company in this massive shift that you have to turn in another direction. There are challenges because you do see that there’s a certain degree of customer inertia, not in a bad way but people are used to consuming how they’re used to consuming and that’s what they want until they don’t. If you try to force streaming on people who don’t necessarily want it in that way, that’s not good either from a customer experience standpoint. Being everywhere and having one cohesive strategy, which is like HBO Max, but acknowledging that you still want to make sure you’re playing to customer’s desires in terms of where they want to view.
Robbie Baxter: I’m not sure if they still do but Netflix was still doing three DVDs out at a time.
Molly O’Connor: I love seeing that the DVD business is still hanging on. It’s awesome.
Robbie Baxter: You started our conversation by talking about how a primary goal of your work is to build habits with your consumers around accessing your content through an app. The challenge of having people that have habits already is that they don’t have a lot of incentive to change. The people who are usually most receptive to a new way of doing things are people who haven’t established that habit yet. I wonder, do you think about your core audience, your longtime fans versus tomorrow’s fans?
Molly O’Connor: To your point about the customers of tomorrow, that’s where every company goes through this. I cannot take any credit for our brilliant programming because I’m over in distribution. A lot of the Max Originals and some of the new content coming out and some of the WarnerMedia Library content reaches those new audiences and younger audiences. That is important. I know on the distribution side, we’ve had to adjust our marketing to be more expansive than what we were used to with HBO to say, “We’ve got all of this different content.” Use that as an incentive to get the person into that.
Robbie Baxter: It is a challenge. A lot of long-standing successful, as you call them, big ships have this challenge because you want to keep your current members happy. You also need to keep an eye out and say, “Am I delivering on my promise to tomorrow’s members?” If I say that HBO has the highest quality, highest production value content, thought-provoking, and entertainment, I might say, “Yes. That’s why I love HBO.” My daughter might say, “That’s what I want, too, but I don’t know that that’s where I’m going to get it. Maybe I’m going to get it from some indie something or other that I found.” It’s balancing Robbie and her daughters. We talked about the content but it’s also about the experience. I was talking with an organization that is in the puzzle world, a different space. There are lots of people who are puzzlers. There are people who do a crossword every morning.
Molly O’Connor: I love a good puzzle, especially during COVID. During COVID, we did a few puzzles.
Robbie Baxter: You’re not only a subscription math nerd but a puzzle nerd as well.
Molly O’Connor: Yes.
Robbie Baxter: A lot of puzzles have questions that can only be answered by a person of a certain age. They’re also done in print with a pen or pencil. Tomorrow’s puzzlers still love word puzzles but they might want different questions, content, and also a different interface. A lot of content organizations over-index on the content and under-index on the experience. When you talk about distribution, distribution becomes important because it’s not just about managing the deals and the partnerships but it’s also about thinking through that member experience. How do they find you? How do they start using you? How do they build habits across the different platforms? All of that becomes as much a part of the subscription as the content itself.
Molly O’Connor: The tech teams and the partner operations teams, there’s a lot of focus on not just the experience within the app, things like profiles so that you can speak to the different members of the household. Robbie and each of her daughters can have different profiles, recommendations, and avatars. There’s also this aspect of integrating with the platform that you’re on as well. To your point, where someone’s accessing is important. Our distribution partners think of app stores in particular with their mobile devices, tablets, connected TV devices, smart TVs. Figuring out and putting resources towards integrating with those platforms is good not just from a partner relationship standpoint because they have their priorities and objectives but also helps with things like content discovery.
The technology required for streaming, the development behind apps, the different authentication and account setup, billing, and all the different systems are hard and it takes a lot of resources.
I feel that the critical decision-making point for a customer when it comes to what they’re going to watch is at their device level. Every time you want to watch something, there’s one step that has to happen no matter what and it’s that you have to turn on your device that you’re going to watch on. On that device or operating system platform, you’re going to see marketing and merchandising. Sometimes it’ll be paid. Sometimes it’ll be editorially curated by the partner. Sometimes it’ll be algorithmic.
In any case, for a lot of people, their viewing decisions are going to be influenced at that device platform level. It becomes even more important to make sure that your app isn’t its own standalone thing but that you’re integrated with that platform. Your marketing and merchandising strategy match up with that so that you can make sure customers, at that decision point, see your content and get into the app to watch it. To your point, it happens initially outside of the app via the partner platform. It’s super important to be ahead of the curve in those areas.
Robbie Baxter: You have to think from the customer’s perspective and where they are. I don’t care that it’s complicated for you as a consumer. My unsophisticated self is like, “Why are they showing me these titles? This isn’t what I’m interested in.” It might be editorial. Some person decided and thought that would be good for me. It might be sponsored or advertisement where somebody paid and said, “I don’t care if Robbie doesn’t like it. She’s going to have to look at this ad before she gets access to whatever she’s going to look for.” The algorithm might be all wonky because I have five people sharing my account with different tastes.
They all use it in different ways. They’re turning on different devices. My kids are away at college and living their professional lives. My son in his bedroom. My husband and I are watching on our big screen. There’s that, which you did a nice job of explaining the challenges there. I’ll admit it, there are five of us enjoying your fabulous content on one account. The second question is, is that okay? How do you feel about families sharing passwords? I know sometimes it goes beyond families too, roommates, friend groups, acquaintances, and people you met on the bus.
Molly O’Connor: The profile aspects of not just our app but you look at a lot of the services in the space is complementary to have a household with multiple people. I don’t think anyone in the industry expects that members of the same household, even if they’re not necessarily always together, each have their own individual subscription.
Robbie Baxter: There are two parts to this. Logistically, how do you do it? Netflix is coming up with some interesting geolocation and preference algorithms. It’s like, “Would you be watching this?” That’s the how. Before that even, there’s the why or what is your policy? Something I noticed with a lot of new ways of interacting, early on, the organizations are lax with shared passwords. I wondered if that was about building habits and establishing footprints. It’s like, “Let everybody have it so that they start using our product in this way. In the future, they’ll subscribe.” Whether that’s my kids establishing their own households and saying, “This is ridiculous, I’m using my parent’s account.” Whether it’s Netflix is shutting the door on multiple streaming events concurrently or location-based.
Molly O’Connor: I’m sure every company probably thinks about it a little bit differently. To your point, there are benefits to creating that loyalty and consumption of content and people getting familiar with the content. That’s partially why a lot of services, in their earlier years even up till quite lately and ourselves included, had free trials. Now you’ve seen in the space that there’s been a shift away from free trials. Part of that was to help consumers discover and start to consume that content and become fans. There’s certainly a little bit of a benefit there.
Streaming now is looked at as such a standard. We’ve gotten to this place in a short number of years. The technology, the development behind apps, the different authentication and account setup, billing, and all the different systems are hard and it takes a lot of resources. Our tech team does an amazing job. There are many competing priorities. Part of it, too, is figuring out the tools we can use to make sure that people are using it fairly. That takes time as well. It doesn’t make it seem overly sophisticated but things are moving quickly and you’re trying to adapt.
Robbie Baxter: Things moving quickly is important in two ways. One of them is that maybe years ago, you wanted to be lax because you were trying to build new habits. Now, you know what it tastes like. You don’t need to taste it anymore. You’re not like, “What is this HBO thing? Tell me about that.” It’s changing fast on what’s possible. It was almost impossible to protect yourself years ago from people sharing passwords. Now, we’re much more sophisticated.
Speaking of sophistication, one of the things I like about you is, like me, you’re a subscription nerd. You love to go into math. Can you tell me about your favorite subscription math and some of the things that you’ve learned that you think are helpful? People reading love to know about what metrics and analyses do you use? Maybe something super sophisticated and maybe something simple and basic.
Molly O’Connor: I love subscription math. My team would be laughing at me right now because they know how much of a nerd I am about it. One of the reasons I call it subscription math is that I find that when people come to work in subscription for the first time, it is different from more transactional businesses in terms of how you think about it. I’ll put two different categories. There’s the finance like budgeting and forecasting element of subscription. There’s more of the analytical aspect of subscription that drives strategic decision-making and they’re distinct. With budgeting and forecasting, even with members of my team when they started, it’s new.
With the transactional business, your sales, your units, they fall within discrete time periods and there’s not necessarily a direct effect on the next time period. If you do a certain number of sales this month, you can start again from zero the next month or year or whatever it might be. With the subscription, it’s one continuous stream. If I end my year with a higher number of paid subscribers, that means I’m also starting next year with a higher number or a lower number. If I get to a certain level of subscribers earlier in the year, that means, from a fiscal year standpoint, I’m getting more months of subscription revenue because I reached that mark earlier in the year versus at the end of the year.
There’s a lot of dependencies with subscription math and you don’t just reset it to zero each new period. That’s an interesting piece for people and it can also be complicated. People who work in subscription are familiar with acquisition and retention. We have a free trial. There’s free trial conversion. There are many different ways of calculating churn. I’ve gone into a deep dive on the internet and arguing with people on Twitter about different ways to calculate churn. It’s a different but interesting way to think about the business. It isn’t truly an ongoing relationship with the customer.
There’s strategic decision-making, which looks at things a little bit differently from finance. It looks at things on a discrete time period basis. From an analytical standpoint, it’s more about, what is the lifetime value of the customer? How many months are they going to be with us on average? If we bring someone in, how much are we willing to pay in marketing to bring that person in? In my case, being in content and engagement with that content, how does that impact retention? How do we figure out what viewing behaviors and types of content that they’re consuming will keep them on the service the longest? It’s an incredibly complex topic but it’s super interesting. There could be volumes of books about it and maybe one day there will be. I love subscription math.
Robbie Baxter: I do, too. There are a couple of things that you brought up that I want to highlight. One is about the ongoing relationship with the customer. That changes everything. It’s not a transactional moment in time, end of the year, start at zero, which is good and bad. If you’re doing well and you’re planning for the long-term, you continue to reap the benefits in future years. If you’re there for the short-term, you might not see those magical numbers that come. When you think about old school businesses where they push for the Q3 goal and then you can leave on a high note. It gives the advantage to people who are in it for the long-term.
There are two other things. One is that all the different parts of the organization and all the different metrics need to work together because there are many dependencies. You can’t say, “We’re focused on acquisition right now.” If you’re acquiring people who aren’t going to stay, it’s worthless. People have to collaborate a lot more around the same shared metrics historically. One thing that you brought up about finance people is they’re used to having numbers this year. I wonder in the boardroom, are you having challenges educating your investors on these metrics, these leading indicators that show the health of the business and they’re going to pay off in future years?
Molly O’Connor: That’s where this mismatch in the sense between how subscription works and the continuity of it versus how Wall Street thinks about discrete quarters of performance. On all the various earnings calls, there’s still pressure for public companies to say, “We reached a certain number of subscribers.” Each company puts targets out there. If you don’t hit them, there are still ramifications of that. It is interesting because Wall Street also is still figuring out how to value the impact or think about subscription businesses.
It is new in a lot of ways. As a model, it’s newer than people realize. There is that tension there of trying to put a square peg into a round hole. At the end of the day, everyone’s figured out a way to make it work. To your point, what are some of the leading indicators that are useful? Understanding how many engaged viewers there are and how many ads and new people have gotten in the door are always important. It’s a challenge.
Robbie Baxter: It’s funny, too because it feels like what’s happening at the front of the train hasn’t reached the back of the train yet. On one hand, for example, investors are still struggling to catch up with a valuation. Some of the parts on valuations where they say, “We’re going to value the subscription revenue at a multiple of seven but we’re going to manage the episodic transactional revenue at a multiple of three. We don’t think that that revenue is likely to happen in future years so it’s not as valuable to us.” They’re trying to figure that out.
At the other end of the train, you have your consumers who are like, “Enough with the subscriptions already. I know everything there is to know about subscriptions and I’m exhausted.” I wanted to ask you if you’re seeing any subscription fatigue with your end users who are like, “I had HBO Go, HBO Now, and HBO Max. How do I use that with my cable, my Xfinity app? What am I supposed to do?” Do you see or hear that?
Molly O’Connor: Yes. The most common discussion nowadays that we talk about or that we hear about, from an entertainment standpoint, what is the number of services on average that a customer will level out at? What is the cost of that combination of services? To be honest, I don’t know that the number of services matters so much. Going back to the app platforms again, they do serve as a point of aggregation of different apps and different content. For customers, as long as they can access all the things they want in one place that meets their needs.
Cost and the ceiling on the price consumers will pay is still an important and open question.
Cost and what is like the ceiling on how much price they’re willing to pay is still an important question. Number one, it remains to be seen. Every company probably has a certain idea in mind of what they think customers may be willing to pay. This is where you see a lot of these different services starting to experiment with different pricing strategies to make it more affordable for the customer. Using ad-supported services, for example, so that you can bring the price down. If someone’s watching an ad-supported service for free, they’re not going to cancel that service. It’s free. Playing around with the different price points and offerings.
At the end of the day, what’s important is that you want to be a must-have service. Ideally, you’d like to be a service where customers have to turn on their devices and figure out what they’re going to watch. In many cases, they bypass that and go straight to your app because they know that it has everything they need. That’s the North Star. There is subscription fatigue, for sure. I also think it’s more about the customer experience and how you make sure everything’s easily accessible in one place for them and at the right price as opposed to the number of services in and of itself.
Robbie Baxter: The organization that has the best experience is probably going to win.
Molly O’Connor: That’s crucial. There’s so much good content. You can’t sleep on the customer experience side of it. It’s important, which is why you see so much investment in it.
Robbie Baxter: Do you have time for a speed round?
Molly O’Connor: Sure. Let’s do it.
Robbie Baxter: The first subscription you ever had?
Molly O’Connor: It may have been Netflix. We’ve got the DVDs when I was younger.
Robbie Baxter: What’s your favorite subscription excluding any that you work with?
Molly O’Connor: I like FabFitFun. It brings me joy. I can’t help myself.
Robbie Baxter: What’s your favorite movie?
Molly O’Connor: I’m a history nerd. I love the movie, Lincoln. Steven Spielberg and Daniel Day-Lewis are amazing.
Robbie Baxter: What would your team say is your superpower?
Molly O’Connor: They would say that I know how to take complicated topics and understand them in such a way that I can explain them in super clear language. They say, “Explain that to a kindergartner.” That’s my superpower.
Robbie Baxter: A time when you felt like a member and you belonged?
Molly O’Connor: Nike does a great job of this. They do make me feel like a member. I’ve ended up buying more from them and participating more in their memberships so to speak. They do a nice job.
Robbie Baxter: Last question, advice for people reading who are trying to build a direct relationship with their customer in a complex world.
Molly O’Connor: At the end of the day, you have to think about things from the customer’s standpoint. The beauty of that is that we’re all customers. We’re all consumers. I come from the entertainment lens. When you turn on your TV, what are the most basic steps you’re going through? If you’re subscribing to some of the consumer goods services, how do you consume products? Always coming back to the customer experience is critical for making the right decisions.