H-B-Oh No!

From the age of 25–40, my range of emotions could generously be described as “narrow.” I loved nobody, and the only real emotions I felt were satisfaction or disappointment from my ambition as I howled in the money storm. My approach to life could best be summarized as “I want more, fucking more.” Problem is, “more” started getting harder to define. During that 15-year period, I laughed out loud a lot less than before and didn’t cry once. Not once.

The only time I ever really “felt” anything was under the influence of media, in particular TV. A hundred years from now, TV will be recognized as the defining art form of our age.

— The final scene from the series finale of Six Feet Under, as we see the deaths of all the characters we’ve come to know over the last seven years
— Michael (Six Feet Under) realizes he’s on the bus that killed his father and begins to sob
— A mob soldier (Sopranos), seeing no way out, looks at photos of his family at the Shore and, clinging to seashells from the trip, hangs himself
— Pretty much any scene with Hank (The Larry Sanders Show)
— Prince Oberyn Martell of Dorne offers to represent Tyrion Lannister in battle against the Mountain to avenge his sister: “I will be your champion.”

Note: Try to ignore the evidence that I appear capable of feeling emotion only in the context of death, bisexual warriors, or Jeffrey Tambor.

What do most of these scenes from the timeless art form have in common? Three things:

1. H
2. B
3. O

HBO changed the landscape, full stop. Yes, they should have seen Netflix coming, but Netflix was able to execute on a strategy the markets would not grant HBO’s parent, Time Warner — cheap capital that didn’t demand profits. When I first read the remarks of John Stankey, the new head of Warner Entertainment, addressing his troops at HBO, I felt … bereft. From the NYT:

Mr. Stankey described a future in which HBO would substantially increase its subscriber base and the number of hours that viewers spend watching its shows. To pull it off, the network will have to come up with more content, transforming itself from a boutique operation, with a focus on its signature Sunday night lineup, into something bigger and broader.

On the face of it, makes sense. AT&T’s strategy is to create an alternative to the Duopoly (Facebook and Google). There is another, btw: Amazon Media Group. But I digress. To achieve this, Mr. Stankey feels HBO will need to become more Netflix-ish and go for quantity. This is a terrible mistake.

iOS & Android

Consumers are busy, and the fastest way to digest and process information is the optimal method for any processor: binary. Most consumer sectors are bifurcating into a mass offering where you are the product (ad supported) or a niche, quality offering where you pay vs. having you or your data rented out. You can get a great deal at a fairly nice resort in Cabo for $100 a night if you endure a two-hour tour of their time-share units, or you can pay $685 a night at Las Ventanas. This is happening everywhere. iPhones only command 18% of the market, but garner 87% of the profits, as Android dominates market share and uses that data to support Alphabet’s supernova business model — digital marketing.

Emirates and JetBlue survive and prosper. Delta/American/United will soon regress to the value-hemorrhaging entities we know and love. In education, there’s Wharton/Duke/Berkeley — and online courses that give you 80% of the knowledge for 1% of the price. There’s Gucci or Amazon, LVMH or H&M, Mercedes or Toyota. In education, 77% of children in the top household-income bracket graduate college, vs. 9% in the lowest.

HBO is iOS, garnering not only awards but billions in EBITDA every year despite spending less on original content. How have they done this?

Process: The Secret Ingredient

From Above Avalon about the Four and how they achieved $4T in value:

It is easy to think that today’s giants are where they are today because of a particular product, feature, or core competency. However, this isn’t the case. Instead, each company has developed a culture and process to create value for customers. It is this process, and the sheer level of difficulty found with changing such a process, that will serve as a roadblock for today’s giants.

Time Warner / HBO and Disney are the only firms over the last several decades that have developed a process for pulling off the impossible — scaling creativity. Lucasfilm couldn’t do it. (Have you seen Attack of the Clones?) Condé Nast hasn’t been able to do it; they’re consolidating. The process at HBO attracted and retained the not-so-secret sauce in media — A-list talent. I’m fairly certain neither Al Pacino nor Paul Thomas Anderson are developing projects at Bravo or Rodale.

AT&T may have the correct strategy, but Mr. Stankey is taking unnecessary, even reckless risks with a unique process/culture. And it’s a process that’s a moat wide enough to protect Westeros. Amazon is the second-largest spender on original content, and they have nothing to match Girls, much less Game of Thrones. Amazon appears to be able to roll over anybody with cheap capital, except HBO. HBO should be the prize for switching from Verizon to AT&T, where the handset and the messaging/apps/etc can molest people’s data and pitch marketers on their “we’re number 3” strategy.

To move HBO to a Netflix strategy is to walk into the Musée d’Orsay and announce, “We need to scale this.” Mr. Stankey’s approach feels like the strategy of the CTO of DirecTV who is suddenly charged with overseeing one of the most creative communities ever assembled. Which is exactly what this is. Mr. Stankey was the CTO of DirecTV.

When your firm is acquired, the fear is somebody shows up and provides rational reasons for actions that will ultimately kill what’s unique and special about the asset they acquired. Trying to transform HBO from Emirates to United will produce Spirit Airlines.

Mr. Stankey cemented his budding reputation as the Prince of Tone Deaf when he used the following analogy to describe the coming year to HBO employees: “You will work very hard, and this next year will — my wife hates it when I say this — feel like childbirth,” he said. “You’ll look back on it and be very fond of it, but it’s not going to feel great while you’re in the middle of it.”

Pretty sure he knows about as much as I do about giving birth: nothing. It’s not easy to turn off 50% of your audience that elegantly. #impressive.

So, Mr. Stankey, HBO is not just your handsome and skilled Prince of Dorne. He is your champion. If the massive and freakishly strong hands of AT&T crush the skull of HBO, a community even smaller than HBO viewers will be my champion — AT&T shareholders.

Life is so rich,