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HBO and its HBO Max streaming service ended March with 76.8 million global subscribers, an increase of 3 million after hitting 73.8 million subscribers as of the end of 2021.
Telecom giant AT&T disclosed the user gains — which marked a contrast to Netflix’s subscriber loss in the first quarter that led Wall Street analysts to reassess their stance on the stock and also dragged down rivals on Wednesday — in reporting its first-quarter financials Thursday, its first earnings update since spinning off entertainment unit WarnerMedia earlier this month to merge it with Discovery.
HBO and HBO Max domestic subscribers reached 48.6 million as of March 31, up 1.8 million from 46.8 million at the end of 2021. HBO and HBO Max added 12.8 million subscribers over the 12 months ending in March, including 4.4 million domestic users, AT&T reported.
AT&T CEO John Stankey on a morning analyst call lauded the recently concluded Warner Bros. Discovery transaction as he underlined continued subscriber growth for the HBO Max and HBO streaming platforms in the first quarter.
“David [Zaslav] inherits an organization with one of the best global portfolios of beloved intellectual property, a team with unparalleled talent and one of the few truly global direct-to-consumer players, as evidenced by the continued growth in HBO Max and HBO subscribers. We’re excited about the potential for continued HBO Max growth as the service launches in more new territories,” Stankey said.
He added that Warner Bros. Discovery “is well placed to lead the transformation we’re seeing unfold across the media and entertainment landscape.” Stankey talked for much of the call about AT&T getting back to being a telco company as it looks to life after WarnerMedia and focusing on its 5G mobile network and other connectivity services for subscribers.
He added Warner Bros. Discovery will have flexibility to license content to others in the streaming arena, even as the combined studio’s programming continues to play a key role in signing up and retaining AT&T customers. “I don’t expect that we’ll continue to be in a captive or exclusive arrangement,” Stankey insisted.
He added AT&T would use much of the proceeds from the Warner Bros. Discovery spinoff deal, put at around $43 billion, to reduce its overall debt load. Also Thursday, the telecom company reported average revenue per user (ARPU) for its domestic subscribers of $11.24, compared with $11.15 in the fourth quarter of 2021 and with $11.72 in the first quarter of 2021.
Global HBO Max and HBO subscribers comprise domestic and international customers, excluding free trials, basic and Cinemax subscribers, AT&T noted. With the Discovery-WarnerMedia megamerger closing just after the end of the first quarter, AT&T said revenue at WarnerMedia, including Warner Bros., the Turner networks and HBO, rose 2.5 percent in the first quarter to $8.7 billion on higher subscription revenue and increased “content and other” revenue.
Ad revenue, however, fell 3 percent to $1.7 billion amid lower linear TV audiences and a “tough” comparison with strong political ad spending in the year-ago period. WarnerMedia’s operating income fell 32.7 percent to $1.3 billion on higher spending for the start of HBO Max in additional international markets, the launch of CNN+ and higher overall “programming, marketing and selling costs.”
WarnerMedia’s quarterly theatrical, TV content and games licensing revenue rose 9 percent from $3.2 billion in the year-ago period to $3.5 billion. Direct-to-consumer revenue rose from $1.9 billion to $2.2 billion, while revenue at basic networks dropped slightly to just below $3.5 billion.
When excluding WarnerMedia and advertising technology business Xandr, which the company late last year agreed to sell to Microsoft, from both quarters, stand-alone AT&T revenue grew 2.5 percent to $29.7 billion, while operating income was unchanged at $5.8 billion.
Cowen analyst Gregory Williams had projected stronger user growth at HBO and HBO Max. The analyst’s forecast had called for domestic HBO Max net subscriber additions of 3.1 million, as well as 4.8 million global user adds “driven by last quarter’s launches in Latin America and Europe.” The Warner studio’s recent blockbuster The Batman contributed to results in the latest period.
The analyst also had forecast the following WarnerMedia first-quarter trends: revenue of $8.95 billion, up 0.4 percent over the year-ago period, with earnings before interest, taxes, depreciation and amortization (EBITDA) of $1.56 billion, down 29 percent. “We expect continued revenue growth at direct-to-consumer and content, while we expect basic networks revenue down 2 percent,” Williams added, citing “roughly flat” advertising, higher programming expenses and increased DirecTV revenue sharing costs.
Some on Wall Street have turned more bullish on the telecom-focused AT&T. J.P. Morgan analyst Philip Cusick on April 11 upgraded the stock from “neutral” to “overweight” with a $22 price target. “A more communications-focused company, AT&T now looks more like Verizon Communications than it has in years after shedding the distractions and revenue drag of a declining satellite video business and the capital obligations of the Warner/HBO media businesses,” he explained.
AT&T shareholders got 71 percent of the stock holdings in Warner Bros. Discovery, with Discovery investors owning the rest.
In AT&T’s core mobile phone business, the company lauded “momentum and growth, with customers choosing America’s most reliable 5G network at record levels.” It reported its highest first-quarter postpaid phone net additions in more than a decade, with 691,000.
In broadband, AT&T Fiber highlighted “strong demand, competitive pricing, continued investment and planned expansion.” AT&T said it added 289,000 fiber net subscribers in the first quarter.
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