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How HBO Max plans to compete against Netflix and Disney+

AT&T officially entered the streaming wars on Wednesday with the launch of its HBO Max streaming service. CFRA Research Senior Analyst Tuna Amobi joins Yahoo Finance’s Akiko Fujita to discuss how he anticipates the platform to size up to the competition.

Video transcript

AKIKO FUJITA: Well, the already-crowded streaming space getting a new player today-- HBO Max launching, ready to put up a fight, I guess, from the likes of Netflix or Hulu. To talk about more about this, we're joined by someone who's very familiar with this space. Tuna Amobi is CFRA Research senior analyst. And, Tuna, it's always good to get your insight on these issues. You know, we always talk about with another streaming player, do we need one? Is it too much? When you look at HBO Max, where do you see them in this already crowded space?

TUNA AMOBI: Right. Good afternoon, Akiko. Thanks for having me. So I mean, this is a very highly anticipated entry in HBO Max-- obviously, backed by a major-- you know, the largest Hollywood film and television studio in Warner Brothers. So I think what is going to happen is that, you know, you've got another formidable-- potentially formidable entrant that's going to give the likes of Netflix and Disney and others a run for their money.

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I think the key here is to understand that HBO has been one of the marquee brands. They have got a huge trove of programming, and they're going to add on some originals. You know, granted, they're launching at a time, COVID-19, might when it looks to be less than fortuitous timing because of the disruption-- Hollywood film and television production. At the same time, they're launching with almost 95% of their planned, you know, programming-- more than 10,000 hours of film and television content.

The one highly anticipated "Friends" reunion did not materialize. That being said, I think there's a lot to be said about the steps the company has taken to get them to this point. Now, to give them the credit, you know, navigating a lot of leadership changes, the disruption in the organization with the AT&T situation-- but all in all, I think this is one company-- this is one offering that I expect to be around for quite some time, being that as it may, this subscription-based model that they're launching with their own advertising component with time.

AKIKO FUJITA: When you think about the headwinds they're likely to face in this space, cost has certainly been mentioned, given that it is a little higher than even a Netflix. But also, what about the distribution partnerships? You know, there's questions about distribution on Roku or Amazon Fire, which would certainly be key. Yes, they've got partnerships with the likes of Comcast, but how important is it for them to have the other partnerships, ultimately? Because that's where the eyes are.

TUNA AMOBI: That's right. It's extremely important. So if you could have one knock on the programming right now, they don't have the Amazon and the Roku, which are huge. And I expect them to add those on. That being said, you know, they have Hulu and a lot of other platforms. I think when you have an initial launch like this, the most important thing is to have some credibility out there with quite a number of partners that will allow you to scale over time. And I think they've done just that.

The one challenge they'll have is to be able to migrate a lot of the HBO traditional subscribers on the pay TV platforms over into HBO Max. If you're currently an HBO Now subscriber, you can get automatically upgraded, which is a standalone streaming platform. But if you're an HBO subscriber on charter or other pay TV providers, they've got to go back to those companies to negotiate in their transitional arrangements, which I expect will sort through over time.

At this point in time, I'm fairly comfortable that they will be able to navigate those distribution platforms. And you're absolutely correct, Akiko, to point out that the pricing is on the high side. That's one potential knock as well. As we go through this, it'll be interesting how they tend to ramp up the content-- you talk about spending $4 billion in relatively short order to ramp up the content on HBO Max. So you're talking about a really well-funded operation here that has some marquee franchises that should give it that traction to get off the ground. And that's really what's important at this point.

AKIKO FUJITA: One of the other companies you follow very closely, Disney getting the greenlight today from officials in Orange County, Florida to reopen Disneyworld in July. You know, we were talking about the stock-- at the beginning of the pandemic, it was Disney+ was the big upside. And now, we've seen just how much pressure the park closures have created. You know, a July reopening, but we're still looking at a very limited reopening, just like we saw over in China. How big of a boost is this for Disney, even if it means a very limited capacity?

TUNA AMOBI: It's definitely a baby step that kind of, you know, portends, I'd say, some silver lining in terms of ultimately getting those parks up and running-- albeit, you know, if it's only 50% whatever capacity, I think, really, that is an indication that everyone is thinking about getting back to normal. We saw Shanghai Disneyland open to 30% capacity.

So that's always a good indication. If you're an investor, you want to see some signs of some return to semblance, to normalcy. So ultimately, I do believe that, over time, I think parks reopen. They're going to at least stop the bleeding. They're losing literally hundreds of millions of dollars in operating income every month as these parks remain closed. So it's going to be a very new normal, as you saw-- temperature checks, facemasks for guests and the staff, very strict health and safety protocols. And no one really knows how this is all going to evolve. But to the extent that they're making those steps, that's definitely a positive.

AKIKO FUJITA: OK, certainly a lot of people are going to be looking to that July reopening. Tuna, always good to talk to you. Appreciate your time.