What is the HBO Brand Worth?

Catching up from vacation

While I was in Mexico WarnerBros/Discovery announced that they were retiring the HBO Max streaming service and replacing it with “Max”. Max will include all of the content that was on HBO Max as well as extensive (but not complete) content from Discovery+.

I am on record saying that most re-brandings are a terrible idea. And in some ways this one is worse than the average re-brand. The HBO name is extremely valuable. It has stood for quality for more than 50-years. I assume awareness of the brand is close to 100%. It’s NPS is “only 15”, but that is very acceptable, and not unusual for a brand as old as HBO in the entertainment space.

So why did they do it?

First it is important to understand that they needed to change the product. A key driver of Discovery buying Warner Brothers was to combine prestige HBO content with mid-brow (low-brow?) Discovery content. The general belief in the streaming industry is that the top quality content is what gets people to subscribe, but then once they have watched the best stuff, you need a large library of mid-brow content to reduce churn. HBO had the tools to drive customer acquisition, and Discovery had the tools to reduce churn. Combining them should, in theory, create one of the giants who could survive the intense competition we are seeing in streaming right now, and come out the other side as one of the winner (along with Netflix and Disney+, and perhaps unlike Peacock and Paramount+).

So changing the product and combining HBO with Discovery made sense.

But why change the name? Why not just keep it “HBO” and expand the brand to allow for the “crap”?

The “crap” is the reason.

HBO’s brand stands for high quality. If HBO starts including Worst Cooks In America, On The Case With Paula Zahn, and Dr. Pimple Popper, will people still believe that the NEXT show they launch will be “Must See TV”? Maybe not.

I could imagine the conversations internally. I guarantee there were heated arguments between longtime HBO brand managers, who did not want the brand diluted, and number-crunchers who saw dollar signs when adding low cost shows causes HBO’s churn rate to plummet (“Do you realize that a 0.1% decrease in churn is worth $77MM in enterprise value?”). In this case it seems the brand managers won.

The HBO brand is NOT going away. Losing that brand (which is what I thought had happened when the decision was first announced) would have been hugely value destructive. HBO will no longer be a stand-alone app, but it will exist as a tab within the new “Max” streaming service. This is no different from Marvel, Star Wars, and National Geographic existing within Disney+. Now when Discovery-Warner has a piece of high quality content they can put it under the HBO banner, and when they have a new reality show they can put it under the Discovery banner.

This all seems fine.

The remaining question is why did they decide to call it “Max” instead of HBO+ — and then kept the HBO tab and the Discovery tab inside the app. Disney+ includes a Disney tab, and internationally includes a “Star” tab where they put the content that doesn’t fit with any of the other four brands. Warner/Discover could have done the same thing. They likely should have.

Right now Max means nothing, and using it instead of HBO+ will likely hurt the company on the margin for new acquisitions. But we will never know the counter factual, and at least the compromise led to some sort of agreement internally - which is usually the most important thing. The hardest part of business at a big company is getting anything done at all.

Keep it simple,

Edward