HBO Almost Bought Netflix: A Case Study in Innovation
Today’s streaming landscape could have been very different if HBO executives made another call in a meeting to discuss the future of the company back in 2005. In a risk-averse attempt to cling to old revenue models, the entertainment giant passed on the chance to buy Netflix.
Author James Andrew Miller (“Tinderbox: HBO’s Ruthless Pursuit of New Frontiers”) spoke with Recode Media and revealed that HBO (in conjunction with Time Warner) considered buying Netflix two years before Netflix entered streaming in 2007.
“So there’s a big meeting in 2005. And I don’t think you can underestimate the effect that it had inside HBO because it’s at a moment where HBO is literally staring at the proverbial fork in the road vis-à-vis direct to consumer,” Miller said. “In 2005, in this meeting, there’s two things going on. One is ‘let’s go direct to consumer.’ There’s two sides of HBO at this meeting, two fundamentally different approaches to the future… The second part of it is, ‘let’s buy Netflix because they are going to be doing things we can’t. And that will be a further way to distinguish ourselves.’”
Miller goes on to recount that executives were too gun shy to pull the trigger on either part of the idea. The higher-ups were scared to upset their relationship with cable providers. In their minds, HBO’s normal stream of revenue could be lost with any direct-to-consumer experiment. Cable and HBO were packaged together since HBO’s inception, and streaming was a whisper of what was to come far, far in the future.
Time Warner and Disney aren’t the only companies to miss the boat. In fact, they’re the rule, not the exception. Kodak spent millions on developing digital camera technology but stuck with film as their primary product, ultimately leading to the company declaring bankruptcy in 2012. BlackBerry had all the resources necessary to create and dominate the modern smartphone market. Netflix approached Blockbuster to sell their company for $50 million (Netflix’s market cap today is over $300 billion). Xerox invented the PC and let the technology stagnate while competitors advanced. And Yahoo decided to focus on its media business instead of its search function, giving Google a clear path to where they are today.
Scott Anderson in Harvard Business Review describes this phenomenon as, “companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up.”
HBO didn’t embrace direct-to-consumer in 2005 when they had the chance. James Miller isn’t sure that even if HBO had approached Netflix that the company would sell. But Netflix was willing to sell in 2000 to Blockbuster. (Learn more about this in the Netflix documentary, “The Last Blockbuster.”) And even if HBO hadn’t bought Netflix, Time Warner had ample investment potential to create their own direct-to-consumer service spearheaded by HBO’s content.
Clive Humby coined the phrase “data is the new oil” in 2006, a year after Miller’s HBO meeting. And maybe if Time Warner executives had understood the importance of data to the future of online business, they would have reconsidered their position.
“As a result [of HBO’s reliance on cable providers], HBO didn’t know who you were. When you go on Amazon, you order a book, they’re going to give you ten other suggestions. HBO couldn’t do that. They didn’t even have your address. They had no idea who you were because cable operators had it and cable operators weren’t letting go,” said Miller.
Today, HBO Max is excelling as a streaming service. They’re the most downloaded streaming app domestically this year. But, they’re still looking over the shoulders of giants like Netflix and Disney+ in nearly every metric. And they wouldn’t have to, if they had only pulled the trigger 16 years ago.
Max is a subscription video streaming service that gives access to the full HBO library, along with exclusive Max Originals. There are hubs for content from TLC, HGTV, Food Network, Discovery, TCM, Cartoon Network, Travel Channel, ID, and more. Watch hit series like “The Last of Us,” “House of the Dragon,” “Succession,” “Curb Your Enthusiasm,” and more. The service changed its name from “HBO Max” on May 23, 2023.
Max has three tiers, an ad-supported plan for $9.99 an ad-free plan for $15.99, and the ultimate tier that includes 4K for $19.99.
All Max subscribers will get the full libraries of shows like “Friends”, “The Big Bang Theory”, “South Park”, “Fresh Prince of Bel-Air”, “The West Wing”, and more.
You can choose to add Max as a subscription through Amazon Prime Video, Hulu, or other Live TV providers.