Ep6 - HBO CEO Richard Plepler on Winning the Streaming Wars

Variety's annual Entertainment and Technology Summit in New York. We enjoyed a wide ranging discussion on the state of the HBO business as Plepler navigates the brand through what's probably the fiercest competitive environment he's seen since he came aboard way back in but I sh'll hear from him. HBO is confident about its position in the marketplace thanks to a well stocked cupboard of hit series like Game of Thrones and a direct consumer business that is making HBO

widely available via digital platforms. I hope you enjoy our conversation, and if you like this episode, make sure you subscribe to Strictly Business. Now here's Richard Plepler. I want to are with the elephant in the room, which I know you're going to be limited in what you could say about a actually less than limited, less than limited about a certain court case about a certain pair of companies, one trying to acquire the other. All right, so let me let me at least ask this. A T and

T is no stranger to HBO. You guys struck a pretty interesting distribution deal in conceptually, what does what do these two companies bring to each other? Look, I think, um, it's quite axiomatic. Right. They have a hundred and ten hundred and twenty million connections with consumers. They have a huge data analytics reservoir which I think will be very

useful to us in terms of subscriber acquisition. Um, the more information we have, we think, the better we can serve the consumer and better serve our customers currently in

potential customers. And the deal that we did that HBO did in the summer two thousand sixteen, which was a multilateral deal broadband wireless direct TV, is really kind of a microcosm of our distribution strategy at large, right, which is, we wanted to make HBO available whenever, however, wherever people want it, And we built a multilateral distribution network for cable Partner's, satellite partners, Telco Partners, and now Digital Partners.

And as you well know, because We've spoken about this before. When we announced that we were going to build a digital platform. The whole concept was we saw the broadband owned the universe. When we made that announcement on Investor Day in October fourteen, that were probably about three and a half million broadband only subs United States. We sit here today, uh, there's twenty million, and we knew that that was growing, and we wanted to be available to

people who just had broadband. And it has been a terrific addition um to our to our distribution model because we now are approaching uh, folks who don't have a traditional cable subscription. That said, we're growing in the ecosystem as well, for all kinds of different reasons. Ecosystem meaning the linear channel traditional distribution system as well and parenthetically, and this is interesting. Remember the broadband platforms that Comcast has, or that Spectrum has, that A T and T has

UM they can bundle us as well. So there's all different means of getting to the customer and we wanted to maximize those, which is why we did what we did, which, as you know, UM resulted last year in our biggest year of sub revenue growth ever. So I think it was a good decision that we did it. We didn't think it was going to be cannibalistic, which was uh. Some people's dig on us was a we wouldn't. We didn't have the tech DNA, We couldn't do it and be if we did do it to be cannibalistic, yes,

we could know it wasn't. And our proposition was pretty simple, which was the pie was going to get bigger and that was going to be good for the consumer. It was gonna be good for distributors, it was gonna be good for us. So when you say you've got this subscriber growth, forgive me for being a little skeptical. Is it possible that, Okay, you guys have tapped now a market that you were never able to tap, that always needed to buy basic cable before they got Hbo. Now

they can go directly to Hbo. Okay, so you got I don't know, three four or five million. How many more of those people could there be left? So we think um our penetration, which has always been about a third of the country, we think we can get and

that's ambitious, it is ambitious. But we we look at our better performing affiliates and those better performing affiliates UM are close to that, and so for us, when we looked at the opportunity in the marketplace, basically what we said was pretty simple, which is, you know what, there's a huge undecided vote out there, and we've shored up our base pretty well. There's obviously there going to be people who aren't going to subscribe because either they feel

they have enough or they don't like the programming. But there is a big market of an additional fifteen or twenty million homes out there that we're going after in both the broadband ecosystem in the traditional ecosystem. So we think there's a lot of growth left and we're going to attack it. And the key to doing that is to continue to make great content, curate that content, and make sure that our brand promise of excellence continues to be sustained. If we do that, I think last year

is an indicator of of what's ahead. We'll get to that content in a bit. But you know, another distribution question, what is the primary growth driver? I know there is HBO now as a standalone. I know I could get it through Amazon or Hulu. Is there any one of those that's going to be the real driver. It's multifaceted, and I would say this over the course of the last five years. Just to your point about growth, a

couple of things. Over the course of the last five years, HBO has realized thirty five For companies forty five years old, we've realized thirty five pc of our growth in the last five years. So I think that shows how robust the brand is. Also, over the last five years, as multi channel homes have declined seven percent, excuse me, we've grown.

And so the fact is we were under penetrated over the course I think of of the last decade, and we want to get that penetration up to what we think is an appropriate level, which is about half the country. That's I mean, you sound incredibly confident that you could do this, which is interesting. GIF. I'm not telling you it's easy. I'm just telling you that, uh, we're we've seen the momentum of our sub growth. We believe that.

You know, here's an interesting I think this is an interesting paradox about what's happening out there in this very rich content driven culture of ours, which is there there's somewhere around nine thousand hours of programming. There's about four eighty seven hours of scripted programming, which accounts to five thousand hours. It's about seven hundred and fifty hours non scripted programming, it's about four thousand hours. Uh, there's only eight thousand, seven d and sixty hours in the year.

So what does that mean. It means you can't keep track of everything. And brands matter more than ever because when people a brand, essentially as a promise. Our promise is the curation of quality. Other people are going to do good work. That's fine. As long as we continue to curate excellence, and we do it across a lot of different categories, we're going to continue to grow. So

that's what we think about. How do we make sure that inside the HBO brand, whether it's docues, whether it's sports, whether it's half hours hours mini series, we are putting together in an array of quality that can become addictive to an even broader part of the consumer ration and so and that's what we're doing for them. I understand your bullishness, but let's take a step back and say,

the reality is the undeniable. The undeniable reality is is the competitive landscape you're facing right now is like nothing you've ever seen Netflix alone spending at probably, you know, possibly double what you guys are doing on just original content, not talking about licensing. Amazon right behind them, Apple coming. Your incumbent competitors like Showtime and Stars aren't fading fast

anytime soon. So how are you going to be able to compete, especially when you're being outspent by a lot of these new players, not a lot, you know, our brand um is a magnet for talented people in the creative community. I feel like Ted Surrando says the same thing he he he does, and he's welcome to say it, and there's some truth to it, and they do very good work. And I've said publicly and I'm I've said

it to them directly. Anybody who doesn't tip their hat to what those guys have accomplished in the last seven ten years just isn't being fair. They've done a terrific job. Our job is to play our game to our fullest capacity. And so the blessing of our brand, the blessing of u HBO, is that the line at our door in in in May of two thousand eighteen is even bigger than the line at our door when I was co

president in two thousand seven to two thousand twelve. The line was pretty big that so it's it's interesting despite all this surfeit of content, we have more extraordinary writers and producers and directors who want to work at HBO than ever before, and so we we have that embarrassment of riches. And you know, every Friday we know of three or four different projects that Monday morning when we came in we didn't know about. And that's very exciting.

So our job is pick well, work with people with whom we have a shared vision. We have more programming coming next year than at any time in our history, working with a wide range of people, um from you know j J Abrams to Issa to a prequel of Thrones, which were uh, we're looking at a range of different pilots right now, uh damon. Linda law from has come back with a project called Watchman. There is absolutely no

shortage of extraordinary work being done for us. Our job make the right bets and if we do that then this is not binary. Doesn't mean there isn't going to be a good show on Netflix or a good show on Amazon. None of that has interfered with our growth. And I think the proof is in the pudding. Um. Again, despite the intensity of this competition, we grew more last year than in any year in our history, and we're growing and on track for terrific double digit sub revenue

growth this year as well. So wouldn't you say, our game well and curate quality, and we will continue to grow. It's not a zero sum game. I was exactly the exact phrase I was going to use. Don't you think even if you manage to do well while competitor B does very well, that competitor F, G and H may actually fall out. Aren't we, in this consolidating world coming to a place where well, the lower brands are not

going to make it? Listen, I do think that. Um, if you just look at your own lives and you look at you know, you have only a certain amount of leisure time, a certain amount of time you can watch movies, watch television beyond the computer you make, you make, you make judgments, you make picks, and Um, the key for us is to keep the halo on our brand so that when people do have discretionary time, they are comfortable that we are fulfilling our honest to deliver excells

and they come they might not love everything but they certainly think that for fifteen dollars a month, three thousand hours of library, the wide range of programming which we make for Hollywood movie studios, people end up saying, you know what, that's a pretty good price value proposition. And they're delivering what they say they're going to deliver. And well, I and I can't watch everything. There's three or four things on every month on HBO that I think are terrific.

Maybe they're in love with John Oliver, maybe Bill Maher, Maybe it's Vice, Maybe it's our docuse, maybe it's the movies, maybe it's Silicon Valley, whatever it is. I want to be a part of this because it's worth it. That's what we think about all the time. Are we building addicts and are we developing and enhancing our curation making more and more consumers um decide that they want to be a subscriber. So you know, job one, of course,

is putting on the hits. You just mentioned Game of Thrones. Uh, these prequels that are in in development, Where do things stand there? I mean, is that going to be the next big hit? Well, look, as you well know a student that nobody knows what the next big hit is you know the the when I when I started, uh back in oh seven and the Sopranos was going off the year. Um, the first question when I sat up at the tc A you may have even been there, was,

oh my god, Sopranos is up there? What's the next Sopranos? And I answered it then by saying, there is no next Sopranos. There's the next great range of programming. And in came Alan Ball with True Blood, and in came Lean had done him with Girls, and in came you know this, this this British writer named Amandui and Nuci satirizing American politics would be. And these two guys who had never really done television, who nobody had heard of,

David benny Off and Dan Wise with Thrones. So what you want to do is create an environment, which we're very proud of, UM, where talent wants to work. And if you do that, UM, it's it creates a certain catalytic momentum because talent shows up and m and then look, we're pretty damn good brand ambassadors. We believe in our brand. Um,

we're very proud of it. But the best brand ambassadors for us are the talent themselves because Nicole Kidman has an experience, or Reese Witherspoon has an experience, or David Kelly has an experience. They're then repeating that to their colleagues, and they're saying, you know, uh, look, I've worked in a lot of places. I've never had the kind of feedback. I've never had the kind of response. I've never been treated that way. My product is marketed beautifully, it's promoted beautifully.

That's an experience I want to repeat so well. People can say a lot of different things, and everybody is perfectly within their rights to celebrate and brag about their brands. We've delivered on it for a long time, and I think the talent speaks about it authentically and and that that has its own virtuous circle. But as we saw with Big Little Lies, the cost of that talent is

going up. The cost of production has been driven up dramatically for a lot of different genres, and then you've got I hate to go back to the Netflix of it all, but when you see the Ryan Murphy's and the Shonda Rhymes getting sort of just peeled out and put back into that streaming service, I mean, don't you have to worry about holding onto talent on both sides of the camera when it seems like they can get

more easily poached than ever. Well, look, we understand that the cost of content has gone up, and we understand that, um, there's a premium on that, and there's a multiple, and we have to pay it. But we're more than willing to do it because the return on that investment is as strong as it is. You know, we are operating income last year, I think report he was somewhere very

close to two and a half billion dollars. We were growing, and we're making money, and we're investing, and we're going to continue to invest more and more in content because that's the heart and soul of the brand. So we're perfectly comfortable making the kinds of invest monts and the kinds of bets we need to make to have a panoply of shows on our network that are going to be compelling. And I think talent knows, because this is

a whole different conversation. There are back end opportunities for talented HBO UH people who come and have uh a full and rich experience at HBO. From the creative side, if the show does well, they do very well. And you know, if you go talk to people who have worked with us, who have a lot of options to go a lot of different places, they're coming back over and over again to work at HBO. I think that speaks volumes about our brand in the experience that people

have there. So is it competitive? Of course it's competitive. Are we more than up to the competition? I think

we are. Do you how do you you know when you're in the room wooing the biggest and best talent and those talents are getting wooed elsewhere, you know, do you do you point out things like kind of look, Netflix has this, They have so much volume there they don't even know how to handle it, whereas maybe we take a little more of a and in Glover pro what I don't think it's necessary to you know, we don't get into speak in derogation of Netflix or of Showtime.

People come to HBO because they know that we are very good at adventizing programming. Our marketing is superb. Our communications team is superb. We know how to take things and lift them up into a very crowded culture. And again, don't listen to me about this. Don't listen to my colleagues about this, listen to the talent talk about this. So what we do is again the line at the door is a long one and that is a blessing

for us. And when people come in, they're very enthusiastic from the first hour about developing with us because our development team is also fantastic and people know what it is to work inside UM. You know, with our development teams, whether it's on a half hours or hours or minis so a lot of the pedigree that we bring to the creative process UM, I think is a great advantage

to to to our competitive side. Let's go back to the distribution side of the house, because I think one under appreciated piece of the HBO business is international, and I think people don't even buy a large understand how big a footprint that is. And that also is making this sort of streaming evolution and lots of different interesting ways. So where's that all going. So we have just as our distribution strategy domestically is multilateral, it is uh internationally multilateral.

So we have owned and operated networks in sixty countries as you know, in Latin America, in in Eastern Europe and Asia. We have directed consumer products in Nordics and in Spain and now in Poland and and and uh, and we're thinking about other markets as well. And then we have what we call home of HBO, which are licensing deals with Sky, with Foxtel, with Bell Media, which are very very very um uh you know, high marginal,

lowris revenue deals. And the question for us, uh, you know, has always been with those don't get counted as subscribers, even though we have you know, eighty five million subscribers internationally. Those don't get counted. But Sky Sky Italia home of HBO, Sky Deutscheley and home of HBO, um Sky Atlanta home of HBO Bell Media in Canada, those are all HBO subs. They're just put under an overall licensing deal. So we've made up till now the decision to do those kinds

of licensing deals home of deals. UM. Whether that evolves in the future is an open question. I hate to sound like a broken record, but Netflix, Amazon full Court Press globally. UM. It's interesting hearing you guys take this customized approach region to region. At some point, though, do you need to go head to head with Netflix and Amazon and others in the same way that you're doing domestically. Well, I wouldn't look at it as are we going to go head to head with Netflix or head to head

with the Amazon. I would look at it, what is the proper way to maximize um our brand over a ten year time rising. Remember we have been UM you know, managing our our business and and tethered to a corporation which was running uh an earnings model for you know, a long time. And when you're at that end of Pennsylvania Avenue, you have one set of demands. When you're my inde Pennsylvania Avenue, you know, you may be thinking slightly differently. So I think the good thing is that

our technology has evolved. UM we now have one global platform. We've merged our tech stacts between HBO Go and HBO now. And what's exciting for us is if we wanted to pivot internationally like we did in Nordics, like we did in Spain, like we just didn't, we can do that and that will be a decision and that we make. You know, over the coming years. What I wanted to make sure that we had and what thankfully we have built is optionality and UM you know, where we pivot

and how we pivot, stay tuned, got it. Uh. Also wanted to talk about technical infrastructure, what you're doing through you know, HBO's digital expression. I mean, you guys went through an evolution there where you know there was some trial and error bam tech. Uh, bam Tech wasn't trial and error before that. Well, we were building from a stand I wouldn't even call that trial in here. We were building from a standing start, a a tech strategy.

And what we concluded very quickly was the fastest way for us to build digital capacity was to rent our back end. And that's what we did with BAMTech. I think it was proved to be um the right decision. They did a terrific job for us, and as we were doing that, we a proficiencies. We built our engineering team, and we created the capacity for us to move on our own. But we couldn't have done that and moved as fast as we did into the digital space. So

we rented what we needed to. We grew and we built, and we are where we are now, which is independent with our own with our own tex stat I mean, as you look across the media landscape, do you see that brands like yourselves are sort of like ingesting that technical DNA and that's what's necessary to get to the next level. Well, you certainly want the kind of tech proficiency and engineering proficiency to improve your I improve your US,

be able to do customization, personalization, all those things. It's interesting. I had one of our senior engineers um in from Seattle yesterday and I said to him, when when you talk about recruitment, which is obviously very competitive in the valley, what is the number one recruitment tool for you when you're bringing people into our house, Because you know there's there's obviously many many places for talented engineers to go.

And you said, the brand, And it's a terrific opportunity um for engineers to come into HBO and to move the needle um in a way that's quite dramatic over a short period of time, which they've done and they've been quite brilliant at it, and and we're improving all the time as you look out. Also on the landscape right now, we can't talk about, you know, what's going to be the future of your corporate parentage, but elsewhere it's you know,

with CBS, Viacom, other things. The consolidation of this world what does it mean for HBO when so much around it is bulking up the way it is. You know, we've all remember we've always been an Ala carte play, so we've always lived in an Ola carte universe where whatever the bundle was, we were sold on top of that bundle. And I think one of you asked early

on about our growth the potential. I think one of the interesting things about our potential is we've always been kind of underpenetrated, I think, and we're now moving that penetration up. When you've been fully penetrated, it's it's a much it's a much harder dynamic when I think there's been nine million people over the course of the last

few years who have who have cut the cord. So I think brands are, as I said earlier, matter more than ever and are you delivering to the consumer something unique because the optionality that is out there for consumers is greater than ever and so your brand has to stand for something and deliver on that promise so that people feel they are buying they are acquiring differentiation. We've always believed we're good at that. I think we've become

better and better at it. And um that's our brand promise. And I think the talent, the writers, the producers who come into work with us, they want to deliver on that. And the first thing we hear all the time if you sit in pitch meetings is you don't hear repetition in a pitch meeting at HBO. You hear innovation at a pitch meeting at HBO. No one's coming in and saying I want to do this differently. They're coming in and saying I have a new idea. And you know,

we're not perfect. We make mistakes, but we have pretty darn good aboutting average. But you know, at a time when you guys, for instance, are doing and I think this is smart. You know Game of Thrones prequels, isn't there something to be said, especially as a media environment and everyonething is getting reboot crazy about sticking to the try it and true, don't get too innovative, find the shore things. No. I think that the brand has always at our best. Artists have come in and done things

that have never been done before. David Chase did something that had never been done before. I think Alan Ball did something with six ft under that had never been done before. True Blood. You know, when we green lit True Blood that was not such an obvious pick of vampire show on HBO. That was a bit pulpy in that way. And when when I did my second UH t C A UM, the first t C A is Sopranos has gone, what are you gonna do? Who the hell are you? And can this? How the hell is

this gonna work? And the second t is was, Mrs Butler, how did you presage the rise of the vampire phenomenon in the United States? And of course the answer to that was we pre sade you nothing. We just bet on Alan and um were we were right. So look at Bill Hayter, who comes in with you know, with Barry, which has done phenomenally well for us from might judge with Silicon Valley, UM J J and Jonah and Lisa

Joy pitching West World. When and when they pitched Westworld, the whole uh kind of cultural understanding and marination in aid wasn't as dynamic as it is now. They were way ahead in seeing, um, both how dynamic that could be and how entertaining that could be. So now I think part of the DNA for us is that writers know that they can take risks and they can make big bets there. There's no fear at our network about doing something that we think has a strong and differentiated

creative voice. And the blessing for us is that talent knows that, and I think we're the great beneficiaries of those of that kind of risk take. Are there genres right now that you're cool too that you think need or you know, maybe need to lay follow you know? I think that we we have when when somebody comes in, we have a totally open mind. Um, we want to hear the vision, we want to hear their point of view, we want to hear why they think this can break

new ground. I think it's very you know, if somebody, if some when benni Off and Wise came in to pitch thrones, remember that was a fantasy showed. David's comment to me was, you're nervous about this. There's dragons in it. It's in to see. This isn't typical aga we And the way he pitched it was he said, look, this is about power, and it's about archetypal power, and it's it's Shakespearean, it's biblical, and if you just forget where you are, you could you could be in tenth century France,

you could be in fifties. That doesn't really matter. And we we believed their vision. So it's not closing what once you start saying, we're not going to do fantasy or you know, uh, you know, the whole gestalp of Westworld was something nobody had ever seen before. Um, and I think, uh, they they've done just a remarkable job. Jesse Armstrong's Succession, which is coming this summer, a remarkable piece of work, I believe, differentiated from anything we've seen. Uh,

a drama about a media company. Do you sort of do you spark to something like that? For obvious reasons? The pitch it's actually it's actually not so much about it. It's about family, and it's about Faustian deals inside families, and it's about fathers and sons, and it's about the complexity of dynasties and families. And um, they happen to

own a media conglomerate. But that's just the subtext. It sounds a little like a real world analog think of but as you can appreciate, it is hardly specific to any one family, but it is. Uh, it's I've seen eight out of the ten and hopefully this weekend we'll see the other two. They've done just a splendid time. Good luck with that, good luck with a lot more, and thanks for coming to us a pleasure any thanks for having anytime, Thanks for listening to yet another episode

of Strictly Business. Make sure you subscribe and you'll get more episodes every week. Tune in next week when we'll have the CEO of Group nine Media and Leer. We'll see you next week.