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HBO Max Has an Inventory Problem (Column)

  2024-03-04 varietyCynthia Littleton42730
Introduction

A decade into the streaming revolution, seams are showing and stitches are starting to pop.The recent uproar about HBO M

HBO Max Has an Inventory Problem (Column)

A decade into the streaming revolution, seams are showing and stitches are starting to pop.

The recent uproar about HBO Max removing a significant number of series episodes and movies from its platform amounts to Unintended Consequence No. 9,789 for an industry that has been turned inside out by digital disruption.

The situation that Warner Bros. Discovery is scrambling to address by lightening the content load should be crystal clear to anyone who has ever worked in retail sales management. Simply put, HBO Max has an inventory problem. The long-tail theory of content that has fueled the streaming business conflicts with the focus on tentpole hits that has traditionally fueled the entertainment economy.

With the major exception of Netflix, no network or platform in the 75-year history of commercial television has amassed such a broad and deep library of content that is made available for on-demand public viewing as HBO Max has in its 27 months of existence. And that means no network has had to deal with the real-world problem of managing the long-term cost of maintaining such a voluminous inventory.

In the retail world, if a product doesn’t sell, at some point it comes off the shelf to make room for something new. That has long been the case in linear television too; if a show doesn’t find an audience, the cancellation ax falls. In the past, however, if CBS or NBC yanked a show, the network didn’t have to keep shelling out coin to make it available on demand. But that has been the norm in the streaming arena.

The bill adds up quickly when the costs of residual fees for actors, writers and directors are included — costs that are triggered no matter how many or how few people cue up a particular episode of a vintage series. There are also producer fees, music licensing fees and myriad other royalties that come into play. Industry sources say the cost varies widely on a title-by-title basis, depending on the underlying deal terms, but there is no version of keeping a show available for viewing on a platform that doesn’t incur at least tens of thousands of dollars in fees per series per year. For the lowest-performing 30% of HBO Max’s active library, that adds up to tens of millions of dollars a year.

At a time when Warner Bros. Discovery is facing serious post-merger financial pressure, there’s no question that lightening the load on HBO Max is a natural place to squeeze out some savings. This move was also made easier by the harsh reality that the shows being removed have virtually no viewership. In some cases, recently yanked shows had episodes that racked up zero views in a 12-month period. There is no spin on the long-tail theory — the sentiment that niche content that drives passion and engagement can be as valuable or more so than mass-appeal hits — that can support an economic argument to keep spending to drive zero views.

Netflix is surely grappling with this same pressure as the streamer adjusts to an environment of slowing subscriber growth around the world. This dynamic spurred Warner Bros. Discovery to act faster to remove content that wasn’t getting any traction. Much was made of HBO Max removing about 200 episodes of “Sesame Street” from the platform. But a week later, there are still hundreds of episodes of “Sesame Street” available for viewing, including the past 12 seasons and selection of vintage seasons.

If tens of millions of new customers are signing on every year, it might make sense to keep that quirky drama or offbeat comedy in the lineup because you never know what will play well in Peoria, or Istanbul or Rio de Janeiro. The high-flying promise of vast archives of content available to consumers with just a click (or voice command) has crashed into the hard reality of Warner Bros. Discovery’s debt-strained balance sheet. Nobody can afford to maintain that big an all-you-can-eat buffet for $15 a month.

But media consumers young and old now have been trained to expect anything and everything is available somewhere, for a price. The jolt of the content inventory reduction push post Q2 earnings could spur renewed affection for brick-and-mortar media like books and DVD sets among younger consumers as they absorb the jolt of these real-world issues of inventory management versus the infinite promise of cloud storage.

One industry veteran likened the gyrations in streaming over the past few months to the wave of clear-eyed analyses of player stats and ROI for star baseball players’ salaries in the early 2000s: “This business is becoming ‘Moneyball.’”

(Pictured: “Sesame Street”)

(By/Cynthia Littleton)
 
 
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