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HBO and HBO Max finished the third quarter in September with 45.2 million U.S. subscribers, down 1.8 million from the 47 million recorded as of the end of the second quarter following its “strategic decision to remove the HBO subscription from Amazon Prime Channels,” WarnerMedia parent and telecom giant AT&T said Thursday.
Global HBO and HBO Max subscribers rose by 1.9 million to 69.4 million though from around 67.5 million as of the end of June. The company said the worldwide number rose “thanks to strong international and ad-supported subscriber growth,” which offset the user hit related to the Amazon decision. HBO Max launched in Latin America toward the end of the second quarter and also brought to market its advertising-supported service tier that month.
But HBO lost some 5 million of its subscribers through Amazon Prime Video’s channels platform overnight as of mid-September when it decided to accept a short-term hit for ensuring a direct relationship with consumers in the longer term. HBO immediately rolled out a special offer to entice those users back or bring in new subscribers.
The latest disclosures and commentary came as part of AT&T’s third-quarter earnings report, which also included latest financials for WarnerMedia.
WarnerMedia had in July raised its year-end 2021 guidance to 70 million to 73 million global HBO Max/HBO subscribers from 67 million to 70 million. On Thursday, the company said it expects to “reach the higher end of its end of year target.” It touted a “strong” fourth-quarter content slate at HBO Max, including Succession, Dune and The Matrix Resurrections. That will help accelerate retail subscriber momentum in the current quarter, AT&T CFO Pascal Desroches said on an earnings conference call.
Management previously said most of the HBO Max subscriber growth in the second half of the year would come from international markets. Desroches on Thursday touted the streamer’s “incredible” success in Latin America so far and upcoming launches in Spain and the Nordics.
AT&T, led by CEO John Stankey, had said in March that HBO Max and HBO would reach between 120 million and 150 million on a combined basis by the end of 2025, up from a previous forecast of between 75 million and 90 million.
Asked if the planned sale of WarnerMedia would change or slow down launch plans for HBO Max in new markets, WarnerMedia CEO Jason Kilar said it was “business as usual.” Stankey echoed that the company was going full steam ahead. The partners struck the deal “with the notion that we are moving this business forward in a direct-to-consumer marketplace” that requires “that you get to scale,” he explained. “We are in a window here where that is a foot race, and it is an important foot race, so there is no pulling the foot off the accelerator.”
HBO Max has no plans to publicly release viewership data, top executives told THR ahead of the earnings report.
On Thursday’s earnings conference call, Kilar was asked about the precise subscriber impact of the Amazon exit. He didn’t detail any figures, but said that “we are very happy with the quarter” and the “very strategic decision,” which Walt Disney and Netflix have also taken, was right for the business. “We feel very good about the quarter,” he concluded.
LightShed analyst Rich Greenfield argued on Twitter that seeing total HBO and HBO Max “domestic subs only down 1.8 million sequentially is impressive,” adding that this was “probably a combination of continued solid organic sub growth and recapturing subs fast.” And he wrote that “anyone who says day-and-date films on HBO Max was a mistake for WarnerMedia is wrong, very wrong.”
Asked about HBO Max’s advertising-supported, or AVOD, version, Kilar said his team was “happy” with its June launch, including its “absolute response, in terms of subscribers, but also because advertising helps lower the price and increase the value for an HBO Max subscription, so we see it as rather strategic, and we are very excited about where that goes.” The AVOD version will have “full content parity” beginning in late January, he noted, mentioning that hybrid movie releases, such as Dune, are currently not part of it.
Meanwhile, the WarnerMedia-Discovery megadeal continues to be on track to close by mid-2022, Stankey said Thursday.
“The general progress on the deal, I think, is consistent with what we would have expected as we walked into it,” he said during the third-quarter earnings conference call of the telecom giant, which owns WarnerMedia. “We are moving through the steps with the various regulatory agencies, both domestically in the U.S. and outside the U.S. Those processes are moving along at the pace we would have expected.” And Stankey added that “I don’t see any surprises.”
WarnerMedia’s third-quarter revenue rose 14.2 percent to $8.4 billion, “driven by higher content and other revenues, including the partial recovery from prior-year impacts of the pandemic and higher subscription revenues, partially offset by lower advertising revenues,” the company said. Direct-to-consumer subscription revenue jumped 25 percent. Advertising revenue of $1.4 billion was down 12.4 percent over the year-ago period “due to timing of the NBA season in the year-ago quarter and lower political ad spending year-over-year.”
WarnerMedia operating expenses of $6.4 billion in the third quarter increased 13.8 percent, “driven by higher film and non-sports programming costs, as well as higher marketing costs, and incremental selling costs associated with DirecTV advertising revenue sharing arrangements.” That was partially offset by lower sports programming costs from the timing of the NBA season in the prior-year quarter.
WarnerMedia’s quarterly earnings before interest, taxes, depreciation and amortization rose 16 percent from $1.9 billion to $2.2 billion.
“We continue to execute well in growing customer relationships, and we’re on track to meet our guidance for the year,” said Stankey. “We had our best postpaid phone net add quarter in more than 10 years (with 928,000 subscriber additions), our fiber broadband net adds increased sequentially and HBO Max global subscribers neared 70 million. We also have clear line of sight on reaching the halfway mark by the end of the year of our $6 billion cost-savings goal.”
AT&T added 1.22 million wireless customers in the third quarter, beating forecasts. AT&T’s quarterly revenue fell 5.7 percent as the company closed the spinoff of DirecTV about a month into the latest period. Its earnings exceeded Wall Street estimates. In early Thursday trading, AT&T shares were slightly higher.
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