Welcome back to What I’m Hearing+, live from Midtown, where I’m meeting with Wolfe Research to discuss, among other things, how much the average American household will actually pay for streaming. I’m clocking in at just under $200 a month, personally, thanks to YouTube TV and a few other sports apps. How’s your bill?

In tonight’s edition, a one-year update on David Zaslav’s much derided, definitely gutsy decision to fold the HBO brand into Max. I’ve got all the data, plus an informed look at where WBD is headed next.

But first…

• Spotify A.I. lessons: Not to sound too cringe, as Gen Z likes to say, but sometimes you’re not really sure what you want to watch or listen to, but you know the feeling you want in that moment. Spotify understands this, and yesterday announced a new A.I.-powered tool that will let those in the beta program build playlists based on text-prompted “vibes.” For example, “Wind blowing through my hair as I coast down the 101.” This may sound silly, but it’s a remarkably astute read on how younger generations approach discovery on platforms when inundated with choices. It also speaks to the company’s ability to use complex metadata to deliver on those specific requests.

  Netflix doesn’t do this (yet), but it does employ emotion-descriptive tags to help audiences better find something that fits their mood. Terms such as “gritty” convey a specific feeling that a viewer may be interested in, even if they can’t articulate their specific desire. Video-based streaming services should take a lesson from Spotify’s playbook here; after all, the biggest issue facing most consumers is the paradox of choice. We either know exactly what we want (opening Hulu for Shogun) or we’re condemned to endless scrolling across multiple apps. Allowing for vibes-based requests can increase engagement while also providing better training data to our new A.I. curators.

• Netflix’s Zack Snyder experiment: A fellow analyst pal who covers Netflix reached out to me the other day with a simple question: “Is Snyder’s partnership a total bust?” Well… on the one hand, Rebel Moon: Part 1, which reportedly cost north of $150 million to make, hasn’t done the gangbusters numbers that Netflix hoped. The movie generated 165.1 million hours viewed in its first four weeks. That’s not bad, but compare it to something like The Mother with Jennifer Lopez, which did 243.1 million hours viewed in the six weeks that it charted on Netflix’s Top 10 and was made for a fraction of the price.

  When comparing first-week figures alone, Rebel Moon (23.9 million completed views) ranks behind The Killer (27.9 million), Heart of Stone (33.1 million), Leave the World Behind (41.7 million), and Murder Mystery 2 (42.9 million). But Rebel Moon isn’t the only Snyder movie on Netflix. Army of the Dead, his first project for the streamer, garnered 72 million household views in 2021, and still clocked about 27.3 million hours viewed in the first half of 2023, according to Netflix’s data dump. This put it in the top 750 titles on Netflix within that timeframe—and if we remember how power laws work, ranking among the top 750 out of more than 15,000 puts it in the top 5 percent. Not bad!

  When I responded to my friend, I said that much like anything in streaming, it’s hard to give a strict answer based on any one title. Did Army of the Dead keep someone from canceling their service? Does Rebel Moon: Part 2 create a franchise that can be exploited across games, podcasts, and experiences? Maybe. What is evident based on the data we have (and new film chief Dan Lin’s early moves) is that Netflix doesn’t need to go big all the time. Midsize titles across comedy, thrillers, and romance still provide the strongest returns on investment. But I wouldn’t recommend writing Snyder off just yet.

The strategy reflected a belief that HBO, despite being perhaps the most august brand in the history of American television, was too elite, too coastal—more Curb Your Enthusiasm than Diners, Drive-Ins and Dives—to truly scale. And on some level, the Max rebranding seemed like an attempt to preserve the sanctity of HBO while alleviating pressure to grow that business into something unrecognizable.

So… how has Zaz’s experiment panned out one year later? As usual, it’s complicated, in part because the answer is slightly different for HBO than for Max. To wit: Max maintains the largest audience satisfaction score among major streamers (88 percent) because of quality programming from HBO, according to research firm Whip Media. The first season of post-apocalyptic drama The Last of Us became the second-most-watched HBO premiere of all time in the U.S., and averaged around 29 million viewers across each episode by the end of the first season, according to HBO. It also was Max’s most-watched series ever in Europe and Latin America, per the streamer. (The next season drops in August.) And HBO reached an entirely new audience—younger and far more female—with Euphoria. In January, HBO took a victory lap as Succession’s final season predictably dominated the Emmys.

Max now claims to be profitable—a rarity in the streaming business—ending 2023 with an adjusted EBITDA of $103 million. But that number comes with a host of caveats, such as the fact that WBD counts HBO fees from pay TV operators as direct-to-consumer revenue. WBD has also trimmed programming, multiplied third-party licensing tenfold, and moved slower than competitors into new international markets. (JB Perrette, WBD’s global head of streaming, recently told Variety that the U.S. accounts for around 80 percent of Max’s revenue.) Also, Max has failed to surpass 1.5 percent of all streaming viewing in the U.S., according to Nielsen. It not only ranks way behind Netflix (7.8 percent) and Disney+ (1.9 percent), but also behind FAST services like Tubi (1.7 percent).

Sure, HBO saw the strongest overall demand share (30 percent of Max’s total library) between August 2022 and April 2023, according to Parrot Analytics. This period included the release of new seasons of House of the Dragon, The White Lotus, Succession, Barry, and The Last of Us. But in the 12 months since then, HBO’s share has dropped to about 20 percent. Max also maintains one of the lowest new subscription shares, at 8 percent in 2023, of all major SVODs in the U.S., according to Antenna. (Demand measures what audiences want to watch on an individual platform, while new subscription share looks at where customers are signing up within the U.S.) This puts it in line with Apple TV+ (also 8 percent) and above only Starz (4 percent) and Discovery+ (3 percent and yes you can still subscribe to Discovery+). Max’s 6.5 percent churn rate is on par with Hulu and better than Peacock and Paramount+, but significantly higher than Netflix’s 2 percent and Disney+’s 4.5 percent, also per Antenna. More troubling, as recent WBD earnings reports have articulated: Max isn’t growing. Subscriptions have stalled both domestically and internationally.

The Discovery+ and HBO Max merger was supposed to leverage the brand’s patina, while providing an ocean of reliable, bingeable programming to prevent viewers from churning. (It’s easy to make fun of Dr. Pimple Popper and My 600-Lb. Life, but they’re really not all that different from Floor Is Lava or Is It Cake? on Netflix.) But HBO’s challenge in the modern ecosystem requires more than an abundance of shoulder programming. The audience behind streaming is changing, and HBO needs to continue to evolve its tactics and lean into certain programming opportunities.

In scaled streaming, the key to maintaining loyalty is providing a four-quadrant service without losing brand recognition. HBO has strong cards to play when it comes to younger-skewing programming and genre entertainment: Look no further than The Last of Us and Euphoria, to say nothing of Thrones, which helped HBO enter spaces typically dominated by niche channels like Syfy, or streamers like Disney+, without losing the HBO edge. HBO will do itself a favor if it commits to genre storytelling in a definitively HBO way, as appears the case with House of the Dragon. Sci-fi and fantasy storytelling still skews younger, and HBO’s distinct take on the genre can break through the noise that comes with saturating spaces. Watchmen is a DC comic adaptation that feels wholly HBO. Casey Bloys, its top executive, is overseeing the new Harry Potter series, executive produced by the controversial and undaunted J.K. Rowling, which should debut in 2026. (This has been a Zaz favored nation.) These shows tend to be critically acclaimed—important to the HBO brand—but they also find larger audiences outside the core elites, and Max can help them spread even farther.

A consistent stream of hits is also critical to reducing churn. Canceling a service is easier than ever, and younger generations are quicker to drop out. One big show a quarter might have worked for HBO when it sat within a larger cable bill. It doesn’t necessarily hold true when it’s driving an easy-to-cancel streaming service aimed at audiences who have grown used to binge viewing. Other services, like Netflix or Apple TV+, provide relatively stronger four-quadrant programming on a more consistent basis, or serve HBO’s original niche audience for a lower price. Meanwhile, binge viewing and multi-episode drops have changed behaviors. Episodic (weekly) programming made up 38 percent of TV demand in the U.S. between Q3 2023 and Q1 2024, according to Parrot, while binge-format and mixed formats (those that used a binge release before going weekly) made up a combined 42 percent.

But there’s not yet a consensus within Warner Discovery on what an international rollout even looks like. For example, the company stopped producing local content in the Nordics, Central Europe, the Netherlands, and Turkey two years ago, which analysts interpreted as an admission of defeat in foreign territories. In reality, though, those regions don’t require much local content investment from an entity like WBD when the company can partner with local providers and provide marquee programming (like HBO series and Warner Bros. films) to sustain an audience. Zaslav, Perrette, and C.F.O. Gunnar Wiedenfels need to figure out the critical markets where an investment in originals is required, versus others where strategic partnerships will do the trick. It’s a math equation, given that they are trying to scale while servicing $40 billion in debt and readjusting EBITDA guidance downward.

Netflix is arguably the only company that has succeeded internationally in direct-to-consumer because it is the only company that has needed to think about it. Seventy percent of Netflix’s subscribers live outside the U.S., and English-language programming accounts for only 28 percent of total demand among that audience. (English programming, meanwhile, accounts for 52 percent of Max’s demand outside the U.S.) In the process, Squid Game, Physical 100, La Casa de Papel, Dark, and other premium local programming suggest that Netflix has already beaten HBO at its own game overseas.

HBO can learn from this. Zaz may seem like Hollywood’s go-to villain, and I’ve certainly questioned a few of his decisions (my lasting legacy may be harping on better “co-exclusive” licensing decisions). But he did get it right in a 2022 earnings call: “People are consuming more content than they ever have, but it has to be great content.” After all, consider a few of the big disadvantages of the streaming era: discoverability tools, which are designed to pair the right viewer with the right title, have siphoned audiences into larger silos than ever before; the deluge of series and films means that audiences are inundated with mediocre television; and it became harder and harder to generate buzz for new shows, while older series were only working on platforms like Netflix because of scale.

HBO is the antithesis to streaming’s great disadvantages. But everyone is trying to create their own version of HBO, and doing so with varying levels of success. The key to allowing HBO to help Max isn’t proceeding as normal. It’s asking what WBD can do to make HBO grander while simultaneously protecting it from having to go simpler. No one is looking to HBO for the next NCIS. That would dilute the brand. But for audiences within that matrix that HBO isn’t currently capturing, what percentage can it capture with engaging, high-quality programming, domestically and globally? HBO didn’t make Riverdale; it made Euphoria, but the audience overlap is the important lesson there. Quantity does not beget quality, but quality doesn’t mean it has to remain small.