The following article is a written adaptation of an episode of Thrilling Tales of Modern Capitalism, Slate’s podcast about companies in the news and how they got there.
HBO is now fully engaged in the streaming wars, with its internet-based HBO Max service vying for subscribers against formidable rivals: Netflix, Hulu, Amazon Prime Video, Disney+, Paramount+, Apple TV+, probably some other pluses too. In the old days, HBO only had one real competitor: a rival pay channel called Showtime. They mostly battled over which would get the exclusive rights to air the hottest new movies. But in the 1980s, a new kind of competitor emerged. VCRs and VHS cassette rentals let people watch movies at home, uncut and uncensored, without subscribing to HBO or Showtime. This eliminated pay TV’s biggest selling point. HBO needed to find something new to lure in subscribers, and this is when it began to create more original TV programming.
But what kind of shows would HBO make? It fell back on its central purpose: to serve as an alternative. “The whole idea is to do something that the networks are not doing,” says Bill Mesce, author of Inside the Rise of HBO. “You’re more or less a counterpuncher.”
At first HBO leaned into an obvious difference: the freedom to put nudity in sitcoms. In 1984, HBO debuted a show called 1st & Ten. It was about a woman who owns a football team. “I still remember a number of critics saying the most imaginative part of this show is how they get the cheerleaders in the shower,” says Mesce.
But over time, HBO discovered it could pair nudity and profanity with quality, and the result was something different from what the networks had—and something people would willingly pay for. Former HBO exec Carolyn Strauss recalls, “As our programming grew more successful and we realized that this was an area that we could compete in, we started to inch in a different direction.”
Strauss rose through the ranks in the era when original programming was increasingly becoming its raison d’être. She says the ability to create TV that pushed new boundaries was directly related to HBO’s subscription-based business model: “Because we didn’t have advertisers, there was less restrictions on what people could say, and then that kind of jelled with allowing people who had had a lot of success in network television to do something different on HBO. And it wasn’t just the freedoms of sex and violence and language, etc., but it was being able to have unlikable characters, have characters that have real points of view, have an antihero be a leading man. Those weren’t really the staples of network television at the time. And so that was what we set out to do.”
After winning critical acclaim for The Larry Sanders Show in the early 1990s, a show that was a lacerating satire about television, HBO really became HBO with two shows it launched in the late ’90s. First, in 1998, Sex and the City arrived with its frank take on female sexuality. Then, in 1999, the big one: The Sopranos, with its unlikable antihero mob boss protagonist.
The hits kept coming after that, with successes in the aughts ranging from a closely observed family drama like Six Feet Under, to a bleak show about drug crime in Baltimore like The Wire, all the way to a megabudget, global fantasy sensation like Game of Thrones. Carolyn Strauss was involved in the decisions to greenlight a lot of these shows. Some of them were no-brainers, but she says that with many of them, it was a very different calculation than it would have been at a traditional network: “A show like The Wire, we could never attract what I felt was the kind of audience it deserved, given the level of excellence I think that the show delivered on. But we kept doing it because we just thought it was great.”
HBO didn’t need lots of eyeballs on every show to please advertisers. Just one show you love might be enough to get you to sign up for HBO, or to stick with it and keep paying every month. And a high-quality show with low ratings might still be kept around if it created buzz, the feeling that to be a truly plugged-in TV watcher, you needed to have HBO. “And then we had to think of, was this a press show?” Strauss says. “Because that was very important for HBO. I think as a smaller service, we needed to make some noise and draw attention to us. And then later on, as we realized we could compete in an awards arena, would this be something that would be appealing towards voters?”
HBO shows did appeal to awards voters and did get a lot of press all through the aughts. But in 2010, HBO launched its first over-the-internet app, HBO Go, officially becoming a combatant in the streaming wars. And while before HBO had been a pioneer in pay TV and in satellite broadcasting, now it was stepping onto well-trod ground. “I think it’s a much more difficult environment to do work in because there’s so many streamers and services out there competing for eyeballs,” Strauss says. “At the time when I was at HBO, I had it way easier than they do. I mean, we were just worried about, Oh, my God, Showtime. And that feels like a very quaint time, a gentle moment.”
The competition is no doubt fierce, but the turmoil within HBO’s ownership structure isn’t making life any easier. It’s a long story. First, HBO was run by Time Inc. for almost two decades. Then Time merged with Warner Communications, famous for Warner Bros. Movies, in 1990 and became Time Warner. And then you might remember Time Warner became AOL Time Warner in 2000, but that went south—it’s a whole other story. And by 2003, the company was sheepishly calling itself Time Warner again. In 2014, it spun off Time magazine, but kept the Time Warner name. In 2016, AT&T reached a deal to buy Time Warner, and in 2018, after a lot of regulatory rigmarole, complicated by then–President Donald Trump’s hatred for CNN, which was one of Time Warner’s marquee properties, that deal finally closed and AT&T renamed its new toy WarnerMedia. So that’s the who, what, and when. Now let’s talk about the why: Why did AT&T want to own Time Warner and by extension own HBO?
“No one really knows the answer to this question, and it’s five years later,” says Alex Sherman, a CNBC reporter who covers the media business. Sherman says the rationale for AT&T buying Time Warner, which includes properties like Warner Movies, CNN, TBS, and of course HBO, was always a little murky. AT&T executives made vague claims that synergies would result if they combined AT&T’s cellphone business with all those entertainment assets. There was some precedent for bundling entertainment with other services, so the company thought maybe you’d choose AT&T over Verizon or T-Mobile if free HBO came with your AT&T cellphone plan. “That theory did not pan out,” says Sherman. It turned out you don’t need to own the entertainment to offer a discount on it. Verizon offers discounted Disney+ with its cellphone plans, but it didn’t need to buy Disney to do that.
The upshot of all this was that after having swallowed WarnerMedia whole only a few years ago, AT&T regurgitated WarnerMedia just about a month ago, in what seems like a clear admission of defeat. “They lost tens of billions of dollars on this deal,” Sherman says. “This was not a good deal for AT&T shareholders. What happened is that AT&T decided they were throwing in the towel on the media business.”
AT&T made a big fuss in 2020 when it launched HBO Max, the HBO internet streaming service, but it takes a lot of money to make content that people want to stream, and AT&T is facing some costly infrastructure investments to get its cellphone service up to speed in the 5G era. So the company decided to refocus on cellphones and stop throwing money into the streaming maw. It’s clearing HBO off its books, and now HBO and the rest of WarnerMedia are merging with Discovery, which owns, in addition to the Discovery Channel, things like HGTV, Food Network, and Animal Planet. Presumably this agglomeration of wildly varied content will form the basis for a new streaming service to compete with other streaming services like Netflix and Hulu. But as Sherman put it, “the question is, how much money are Americans willing to pay for streaming services before they tap out?”
If you’re already spending $14 a month for Netflix and $8 a month for Disney+, at a certain point you might find it hard to justify the $15 a month for HBO Max, but maybe it will look more attractive if, thrown into the bargain, you get Discovery stuff, like animal shows and Property Brothers. That could be a more tempting offer. But what does that mean for HBO, creator of The Sopranos and The Wire, home of prestige TV? Is this going to dilute the brand and cheapen it in some way?
“No one knows the answer to that,” says Sherman. “This was the fear of many people that worked at HBO previously, that if you take HBO and you offer a bunch of programming that’s very much not HBO—and Discovery is on the other end of HBO: 90 Day Fiancé, HGTV, Cooking Channel reality shows. This is as far away from HBO as you get. Suddenly, over time, you now have a product that will degrade the HBO brand, and people will lose the connection of prestige and HBO, because it’s just kind of this mishmash thing.”
HBO’s recent hit Mare of Easttown shows the network still makes stuff that people want to watch, but can it keep pace with well-funded competitors who are churning out quality shows at a dizzying rate? As HBO’s new alliance with Discovery launches, it’s already at a massive disadvantage compared with its rivals. HBO Max has about 45 million monthly subscribers, but Disney+ has more than 100 million, and Netflix has 200 million. Adding Discovery’s 15 million subscribers helps, but to get the kind of scale they’ll need, HBO and Discovery might need to add some more partners into their mix—which seems weird, since everything we heard about streaming was that it would be great because it was unbundling your cable package so you could pay for channels à la carte, instead of paying for 150 channels and only watching six of them. But now we’re talking about rebundling content so you can pay for a package of channels, just like before. Yes, those channels come in new combinations, and over the internet instead of through your cable box, but it seems like in a lot of ways we’re back where we started.
Are we cursed to go back and forth between bundling and unbundling and rebundling forever? Sherman says, “We are headed to a great rebundling. And that’s why I think there’s a decent chance that we’re not done with the consolidation here, that either one of the big behemoths—Apple, Amazon, Disney, maybe—comes along and buys the combined WarnerMedia-Discovery company in several years, or WarnerMedia-Discovery decides they still don’t have enough content and they end up buying or merging with either NBCUniversal or ViacomCBS.”
A little more than a week after HBO and WarnerMedia joined forces with Discovery, Amazon bought MGM, the Hollywood studio behind, among other things, the James Bond franchise. Presumably it did it to shore up the Amazon Prime Video streaming library and throw yet more content onto the already raging fire. For HBO this must be a scary new reality. They’re not competing against Showtime or VCRs. They’re competing against Amazon, Apple, the biggest, richest companies in the world, and they’re not pioneering new ways to watch TV. They’re scrambling to catch up with places like Netflix that have been doing this much longer and at a scale that would have been unimaginable at the height of HBO’s vintage successes.
Everything about TV is up in the air these days. And for Carolyn Strauss, who started as an HBO temp way back in 1986 in a much simpler time, it’s not at all clear whether this crowded new television landscape is an improvement. “Right now I’m so overwhelmed by television,” she says. “I am overwhelmed by choices. Honestly, I don’t know whether it’s better for me to be bundled or unbundled. I’m just overwhelmed and confused by the whole thing.”