Bloomberg Businessweek

ichard Plepler, the gregarious and perpetually tanned

head of Home Box Office Inc., had a saying: HBO is

a media company, not a technology company. The

statement grew more radical with each passing year as seem-

ingly every other business—car manufacturers, cigarette mak-

ers, pizza chains—declared themselves technology companies.

Under Plepler, who became co-president in 2007 and chief

executive officer in 2013, HBO didn’t pretend to be a boot-

strapping startup; it was a house of art, not science. The

network cultivated the top creative minds in TV, racked up

Emmys, threw killer cocktail parties, and generated billions

of dollars in profit for its corporate parent, Time Warner.

Then, on Feb. 28, what felt like one of the last cultural

joyrides in the media business ended, as one might expect,

in pools of corporate-acquisition bloodshed. Plepler, 60,

announced in a memo to his staff that he was resigning.

AT&T Inc., which had acquired Time Warner Inc. for $85.4 bil-

lion, had just beaten back one final antitrust challenge from the

U.S. Department of Justice and was preparing to reorganize the

assets of what’s now known as WarnerMedia LLC.

Later this year, AT&T executives will introduce a streaming

video service featuring WarnerMedia content, which includes

brands such as TBS, TNT, and the Warner Bros. studio. HBO

will play a crucial, if still uncertain, role as one of AT&T’s keys

for unlocking digital fortunes.

But interviews with more than a dozen former Time

Warner and HBO employees, many of whom declined to

be named discussing a former employer, suggest that max-

imizing HBO on the internet has long enchanted and frus-

trated the scores of executives who’ve tried. “HBO has been

the ultimate Gordian knot,” says Jamyn Edis, a former vice

president of HBO’s consumer technology group who’s now

an adjunct professor at New York University’s Stern School

of Business. “It’s been a seemingly intractable set of prob-

lems: long-term contracts written before the dawn of dig-

ital, 30-year-career executives with no incentive to hurt

the Time Warner cash cow, an institutional distaste for

technology—‘we’re in the content business’—and the inter-

necine tribal warfare typical of any organization.”

According to the legend of the Gordian knot, Alexander the

Great solved the conundrum not by disentangling each snag,

but by slicing through them with a sword. AT&T is swinging

its blade at a time when Netflix, with 58 million paying U.S.

customers, has far outpaced HBO, which has an estimated

8 million standalone streaming subscribers.

On April 14 the eighth and final season of HBO’sGame of

Throneswill return with its dragons and undead warriors.

Until then, the only realms likely to see more upheaval will

be AT&T’s newly conquered kingdoms, which will undergo a

corporate rejiggering. Rather than witness the carnage likely

under House Telco, Plepler abdicated his throne. (Through

an HBO spokesperson, he declined to comment.) He’s left his

supporters to grapple with an unsettling thought: What if the

algorithmic data miners were right all along?

wenty years ago, as fear of the Y2K bug gripped the

land, HBO hired a new chief information officer.

Michael Gabriel, who’d worked at EMI, the giant

music conglomerate, watched as Napster and other down-

loading services unleashed havoc on the industry. He asked

Jeff Bewkes, then HBO’s CEO, how he wanted to deal with the

upheaval when it eventually hit TV.

Bewkes wanted HBO to be all in on the internet when the

time was right, Gabriel says, but he didn’t want to spend too

much money or be premature. HBO’s business model was

reliant on relationships with cable- and satellite-distribution

partners, who accounted for virtually all revenue. Gabriel

assembled a team to experiment with the emerging technol-

ogy of playing TV and movies on the internet. (Through a

spokesperson, Bewkes declined to comment.)

From the outside, people think of HBO for its innova-

tive programming—The Sopranos, Sex and the City, The Wire,

and, of course, Game of Thrones. But people who’ve worked

there describe a hidebound institution. Decisions are made

slowly and by consensus; longtime employees guard the net-

work’s lucrative, award-winning status quo. From the start,

HBO’s internet team was met with occasional outbursts

of resistance. Gabriel recalls a manager meeting when a

business-affairs executive unloaded. “He began vehemently

shouting at me, ‘You’re going to destroy a $3 billion busi-

ness,’” Gabriel says. (The traditional business would be fine,

growing to $6.6 billion in annual revenue and more than

130 million global cable and satellite subscribers by 2018.)

In 2006, HBO began beta-testing HBO on Broadband,

a service that let people watch its programming on their

computer, with Time Warner Cable subscribers in Green

Bay, Wis. Initial feedback was encouraging. At the time,

Gabriel was keeping an eye on an emerging competitor. In

February 2007, Netflix Inc., a data-minded company in

49

Bloomberg Businessweek March 11, 2019

R

T

Can AT&T’s corporate mindset

transform HBO, the network

behind Game of Thrones, into the

king of streaming?

By Felix Gillette

PHOTO ILLUSTRATION BY CAROLINE DAVID; PHOTO: COURTESY HBO

The Night Is Dark and Full of Netflix