• People do not shop for their entertainment experiences with price being the primary motivation, AT&T HBO MAX Chief Reilly told a TV critics meeting Wednesday.
"People don’t say, ‘I'd love to go to this concert, I don't really want to go to this one as much. But it's cheaper, so I guess I'll go to that one.”
Reilly - Even if that type of consumer behavior were true for concert tickets – a one-off purchase has far different consumer behavior than a recurring monthly expense that has ongoing monthly decision points based on current product appeal relative to other alternatives.
A very simple model of the firm -
Profit (PR) = Revenue minus Cost = (R-C)
Revenue = Price (P) times Quantity (Q)
PR = P * Q – C
Quantity demanded is a function of many things, but primary drivers are Price (P), in absolute terms and relative to the competition, and degree of competition and number of alternative offerings (CM).
Q (P,CM)
PR = P * Q (P,CM) – C
The only way a much higher priced product such as HBO Max can obtain a significant share of market is if the service has a long term competitive advantage - a clearly recognized premium product, or if the served-market is price inelastic (the reduced demand due to the higher price is more than offset by the greater revenue from the remaining customers) due to a lack of competition.
Sorry Reilly but the streaming market is elastic, price matters – very much. Look below at the price differentials and then the number of competitors and the resources they have (Amazon and Apple can buy and sell AT&T any day of the week, Netflix has the clear first-mover advantage).
There are too many competitors spending too much money on too many offerings and have enough moola to be able to play the long game. For them, streaming is viewed as an opportunity, but they are not betting their company on it, they have lots of cash flow that does not need to be dedicated to paying down debt or having to reduce headcount in order to reduce expenses.
The current headcount reductions are due almost exclusively to the TW acquisition which brought the intervention of Elliot management and are not primarily due to macro-economic conditions, competitive pressures, or secular trends in the telecom industry. Positive cash flow from streaming content is a long way off, especially when HBO Max pricing will have to be reduced to be competitive!
HBO Max $14.99
Comcast - Peacock Free
Peacock Premium $5.00
Netflix $8.99
HULO $5.99
Amazon $8.99 (Free for Amazon Prime subscribers)
Disney Plus $6.99
Apple $4.99
Fire Reilly and hire me – I’m now available!
5 replies (most recent on top)
It's Price and Content...and we pretty much lag in both those areas. Most of our residential products are commodities where price is the name of the game. It seems anyone who shops around rarely goes with AT&T anymore unless it's their only choice. We used to differentiate by innovation and quality but now so many services across competitors are very similar. And a lot of times our products come off as either a gold plated Pinto or a primer'd Cadillac when the market really wants two things - basic transportation or a luxury vehicle.
People will not pay to watch comercials anymore. You can have ad revenue or direct billing but not both. Att thinks we can do both AND charge 5x the price for half the content. Doomed to failure I am afraid.
Yes, but you have to see what you get from other competitors like Apple for $4.99 as there is no comparison in content. Apple is a la carte as you have to pay for many channels separately and the additional ShowTime, HBO etc. are not cheap. I agree $49.99 is outrageous and will scare off the majority of consumers as too pricey and quite an up sell. Apple is giving away 1 year free of Apple TV with new IPHONE's. AT&T needs to do something anything similar to gain some market share and once hooked try and keep the Customers. We really need some fresh ideas and promotions to compete in this market space. Everyone has great promotions these days but never ever see AT&T coming out with anything close to be competitive. What gives?
If the consumer had money they wouldn't be cord cutting.
Yep it could be a long time for att streaming to work