CEOs In The Streaming World Hope Fortune Favors The Bold

Fortune favors the bold, right?

AT&T CEO Randall Stephenson hopes so. So does NBCUniversal CEO Stephen Burke. Both men are turning down sizable licensing revenues in the hopes that people will flock to their standalone streaming services.

This is the kind of move that either puts you on the right or wrong side of history. There is no in between. CEOs are paid the big bucks precisely because of the potential fallout from moves like these.

This week, WarnerMedia, which is a division under AT&T, announced it’s launching a direct-to-consumer streaming service called HBO Max, leveraging the name value of the incredibly popular premium network. That’s not really the bold part…this is the bold part: Stephenson’s taking Friends, the popular sitcom from the 1990s, off Netflix, where they were getting an inordinate amount in licensing fees ($80 million for one year, according to reports), and onto HBO Max.

In fact, they are putting all of Warner Bros’ content library onto HBO Max. Stephenson is betting that the Warner Bros’ library and HBO’s own selection of shows is enough to get people to pay the $15 per month for HBO Max.

We shall see.

All I know is if you’re giving up a $80 million licensing fee for one show in one year to essentially do nothing, you better know what you’re doing. To clarify, HBO Max is “paying” $425 million to carry Friends five years starting in 2020—but this is a transaction within the same conglomerate. It’s essentially like AT&T is transferring the money from one department to another. It’s not the same as getting paid by Netflix to carry Friends, which was an easy revenue stream for a show that aired 15 years ago.

In essence, AT&T is paying a lot of money to try to their hand at this streaming thing. And to be fair, this is a defensive move against Netflix, a company that has undoubtedly hurt AT&T’s DirectTV satellite TV service and upended the entertainment industry. This move will slow down the Netflix locomotive train that’s caused headaches for almost every CEO in this industry not named Reed Hastings.

A few months ago, Stephenson had this to say about a potential streaming service: “I don’t think people yet have an appreciation for what this product will bring to bear. It’s a luxury brand in terms of content.”

When it comes to Friends, he’s not wrong about its popularity. Friends was the second most streamed show on Netflix last year. What show was number one? The Office—another popular NBC sitcom from a bygone era. That brings us to NBCUniversal and outgoing CEO Stephen Burke.

Burke and NBCUniversal announced their own standalone streaming service (this one supported by ads) a few months back. The company recently revealed that The Office would be leaving Netflix for this service. Like Stephenson and AT&T, Burke and NBCUniversal are forgoing hundreds of millions in licensing fees it would get from putting this show on a third-party streaming service and hoping to make it back through the new standalone service. (Again, they similarly made an in-house transaction to acquire the rights to air this show—a move that’s necessary to pay rights’ fees to the show’s creators).

And again, to be fair, NBCUniversal’s parent company, Comcast—like AT&T—probably loves any move that hurts Netflix.

But here’s the problem as I see it and the issue with Stephenson’s luxury brand comment. People don’t want to subscribe to multiple streaming services. They don’t want luxury brands in streaming services. That’s the whole reason people got rid of cable in the first place. Most of them thought cable was too much money for too many channels that they weren’t watching.

Stephenson has called Netflix the Walmart of streaming services and his service as Tiffany’s. If you are trying to appeal to the frugal streaming generation, I know who I’d rather be. This is the generation that essentially killed CDs and turned the music industry upside down.

A survey of cord cutters found that 78% only subscribe to three services. Less than 5% subscribe to more than five services. Keep in mind, these are the people that are only using streaming services. My guess is the people who still subscribe to cable are less likely to have even fewer streaming services.

Netflix. Hulu. Amazon Prime. Those three have established themselves firmly in this market. Disney and its incredible library of content will be launching its own service. There are plenty of other offerings to come in the soon-to-be “streaming wars.” Does that leave room for HBO Max and an NBCUniversal streaming service?

Stephenson and Burke are making a bold bet that the streaming consumer of the future will pay $10-20 per month a pop for 5-6 services. That’s almost $100 in streaming services per month—which is essentially what people pay for cable. Again, the whole point of cord cutting was people were cutting down on the cost of cable.

Fortune favors the bold—but I don’t think it will favor these bold CEOs.