In reporting its fourth-quarter and 2020 financials on Wednesday, telecom giant AT&T detailed some impairment charges for various businesses, including WarnerMedia and DirecTV, affected by the novel coronavirus pandemic and streaming video revolution.
Its fourth-quarter expenses included “charges of approximately $780 million from the impairment of production and other content inventory at WarnerMedia, with $520 million resulting from the continued shutdown of theaters during the pandemic and the hybrid distribution model for our 2021 film slate,” the company said.
It also highlighted “noncash impairment charges of $15.5 billion resulting from changes in our management strategy and our evaluation of the domestic video business,” led by its DirecTV unit. AT&T explained: “These changes, including our decision to operate our video business separately from our broadband and legacy telephony operations, required us to identify a separate video reporting unit and to assess both the recoverability of its long-lived assets and any assigned goodwill for impairment.”
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The update seemed to fit into AT&T’s plans to sell a stake in DirecTV to private equity firms. “It was long overdue,” MoffettNathanson analyst Craig Moffett tells THR, calling the writedown “smaller than expected.” He adds: “But it does make sense to get some of this cleaned up in anticipation of a transaction. At that point, they will have to recognize the loss.”
In a report, Moffett shared that he was “surprised to see just how far AT&T’s video margins have fallen since the heady days when DirecTV’s margins (at the time they were acquired) hovered in the mid-20s.” In the fourth quarter, AT&T’s video business margins, “including the lower-margin U-verse, and bearing in mind the seasonal headwind the NFL Sunday Ticket, were just 8.6 percent,” he noted. “Margins aren’t going to get much help anytime soon.”
The firm’s fourth-quarter results included a loss of 617,000 premium TV subscribers at DirecTV and U-Verse and the loss of 27,000 subscribers at the AT&T TV Now streaming service.
AT&T also noted that its fourth-quarter earnings overall included approximately $650 million of COVID-19 impacts, including $90 million of “cost reductions reflecting insurance recoveries associated with WarnerMedia business disruption recoveries offset by additional incremental expense.”
WarnerMedia earnings for the quarter included results for HBO and streaming service HBO Max, which gained subscribers in the final quarter of 2020, the Turner networks, including CNN, which benefited from the election year, and Warner Bros. The studio in a controversial gamble on Christmas Day released Wonder Woman 1984 in a hybrid strategy, which included HBO Max in the U.S. and cinemas where they were open.
Total WarnerMedia operating income fell to $2.54 billion, while revenue dropped to $8.55 billion in the fourth quarter amid a roughly $1.6 billion COVID-19 hit to film and TV. Management lauded a 7 percent advertising revenue improvement in the latest period, driven by “higher political and news” results.
Warner Bros. posted a fourth-quarter operating income decline of 1.7 percent to $791 million as theatrical revenue again dropped from the year-ago period amid the coronavirus pandemic, leaving total studio revenue down 21.2 percent at $3.2 billion. Theatrical results in the final quarter of 2020 “decreased primarily due to the postponement of theatrical and home entertainment releases due to the pandemic, and unfavorable comparisons to the prior year, which included the early fourth-quarter release of Joker; with limited capacity and continued closure of movie theaters in many locations, Wonder Woman 1984 was released near the end of the quarter through a hybrid distribution model with a global theatrical release (including the United States) and concurrent release on HBO Max for 31 days.”
Warner’s television business also posted a decrease, “primarily due to lower TV production revenues from production delays related to COVID-19, which impacted delivery for the 2020-2021 broadcast season, and lower TV licensing.” For all of 2019, the studio had hit record annual operating income of $2.38 billion, but 2020 came in below that.
At HBO, fourth-quarter operating income dropped to $86 million from $481 in the year-ago period, driven by investment in HBO Max. But quarterly revenue rose 11.7 percent to $1.9 billion, “reflecting an increase in subscription revenues, partially offset by a decrease in content and other revenues.” HBO Max and HBO ended 2020 with more than 41 million subscribers in the U.S. and nearly 61 million worldwide.
The company noted $800 million in investments in HBO Max in the fourth quarter and $2 billion for the full year 2020.
Management on an earnings conference call said the team was still shooting for a second-quarter launch of an advertising-supported version of HBO Max. And it said the planned 2021 international launch of the streaming service would happen later in the year.
And at Turner, operating income of $1.4 billion was up 7.6 percent despite nearly unchanged revenue of $3.2 billion thanks to lower expenses, “primarily due to lower programming and production costs, including a decrease in sports costs associated with the delayed start of the NBA season to the latter part of the fourth quarter.” Turner’s fourth-quarter advertising revenue fell due to the delay of the NBA season and “lower overall ratings, which unfavorably impacted Turner’s domestic entertainment audience delivery, partially offset by higher news delivery during the general election.”
AT&T management, led by John Stankey, has over the past year and amid the pandemic talked about plans to fine-tune the firm’s operations, including via job cuts and other cost reductions. It has also focused on reducing AT&T’s debt, including via asset sales, with DirecTV among the businesses that have been eyed for divestiture.
Stankey said in the second half of the first quarter, his team would hold a virtual investor event.
The CEO highlighted three priorities for 2021: growing direct customer relationships, where HBO Max is a “key” part of the story; continuing to make the company “more agile and efficient”; and strategically deploying capital, including further debt reductions and asset sales, while continuing to pay a dividend. Stankey said he was “pleased” with the progress of the past two quarters, arguing “we have more work to do,” but are “on the right track.”
He said that describing 2020, which was overshadowed by the coronavirus pandemic, was not easy, as most descriptions “wouldn’t be nice to say in public,” but he argued the company’s business proved to be “resilient.”
https://www.hollywoodreporter.com/features/2020s-big-plot-twist-how-wonder-woman-1984-came-to-upend-hollywoods-future
