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Telecom giant AT&T, led by chairman and CEO Randall Stephenson, on Wednesday reported higher first-quarter financials for its WarnerMedia unit amid growth across all units and said it lost 83,000 subscribers at its DirecTV Now streaming service in the period after a 267,000 drop in the fourth quarter.
DirecTV Now had ended 2018 with 1.6 million subscribers and closed March with 1.5 million. The company also lost 544,000 traditional pay TV subscribers in the first quarter between its DirecTV satellite TV and U-Verse services to finish March with 22.4 million total subscribers.
After the 83,000 subscribers losses at the DirecTV Now streaming service, Stephenson during a morning analyst call conceded there would be continuing customer losses, but “we should have a decent second half of the year for DirecTV Now.”
Meanwhile, AT&T’s entertainment unit WarnerMedia, led by CEO John Stankey, reported an 11.6 percent first-quarter operating income improvement to $2.2 billion and 3.3 percent revenue gain to $8.4 billion. The company cited “Turner subscription revenue growth, HBO digital subscriber growth continu[ing] as [the] last season of Game of Thrones begins, strong Warner Bros. revenue and operating income growth.”
Stephenson pointed to former NBC Entertainment chairman Robert Greenblatt having come on board as chairman, WarnerMedia Entertainment and direct-to-consumer. His top priority is developing a three-tier direct-to-consumer streaming service to launch in the fall as it combines programming from HBO, Turner and the Warner Bros. library.
“We’re very optimistic and the Disney announcement gave us more optimism about what we will bring to market,” Stephenson told analysts, with an eye to Walt Disney’s recent Disney+ streaming service reveal, which set a high content bar for WarnerMedia, Comcast and Apple as they make plans for rival streaming services.
Warner Bros.’ operating income jumped 42.8 percent thanks to a “strong performance in theatrical and television,” including theatrical revenue that grew 12.7 percent, driven by continued contributions from Aquaman. Television product revenue increased 7.7 percent due to “higher initial telecast revenues, partially offset by lower licensing revenues.”
Turner posted a 7.0 percent operating income gain as subscription revenue rose, but advertising revenue declined “primarily due to [the] shift of NCAA Final Four games.” The unit’s operating expenses were down 4.1 percent “primarily due to lower programming expenses reflecting the shift of the NCAA Final Four games and lower original programming and marketing costs.”
And HBO’s operating income rose 6.0 percent in the first quarter despite a carriage dispute with Dish Network. Subscription revenue and subscribers were “unfavorably impacted” by the dispute, but revenue was helped by “higher domestic rates and digital and international growth,” the company said. HBO’s operating expenses fell 13.0 percent due to lower programming and distribution costs.
Earlier Stephenson in a statement that accompanied AT&T’s latest results touted the telco giant’s overall growth strategy. “All this speaks volumes about our focus on our strategic priorities and our ability to grow our mobility, WarnerMedia and emerging Xandr [advanced advertising and analytics] businesses. Our teams are executing well and have turned in a good performance to start the year.”
AT&T added paying down debt, which has grown to $171 billion since acquiring Time Warner and renaming it WarnerMedia, was its big priority for 2019. Stephenson told analysts the telco was steadily paying down the $40 billion in debt taken on to acquire Time Warner with strong free cash flow and asset sales. That includes selling a stake in Hulu for $1.43 billion and additionally the Hudson Yard office space for $2.2 billion.
AT&T said Wednesday that it would end 2019 with around $150 billion in debt and that it was on track to pay down around 75 percent of the $40 billion debt behind the Time Warner acquisition by the end of the year.
6:30 a.m.: Updated with comments AT&T CEO Randall Stephenson made during an analyst call.
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