HBO Max Will Feature Live Sports Content, AT&T Boss Says

Randall Stephenson - Economic Club Lunch- Getty-H 2019
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CEO Randall Stephenson, on an analyst call, addressed CBS stations going dark on his DirecTV and U-Verse platforms after the two sides failed to reach a new carriage agreement.

NBA and Major League League baseball games now playing on TNT, Turner and other WarnerMedia platforms are headed to the studio's upcoming streaming service, HBO Max, AT&T chairman and CEO Randall Stephenson told analysts in an earnings call Wednesday.

"This won't be at the early stages of HBO Max, but you can assume ultimately HBO Max will have live elements,” Stephenson said.

The AT&T boss was also asked how WarnerMedia will profit from its exclusive TV sport properties on HBO Max. "Those unique live sports — NBA, Major League Baseball, NCAA basketball — will be important elements for HBO Max. The same with news ... Exclusive content has been important for as long as the TV business has been around. We don't see that changing," he told analysts.

He pointed to Turner and The Bleacher Report as assets ripe for monetization on WarnerMedia's streaming service. "We have some great exclusive content in The Bleacher Report, from NBA to soccer, European soccer. So a lot of opportunities to take advantage of unique content deals we have in WarnerMedia," he said.

Stephenson reiterated that HBO Max will launch in spring 2020 (with a beta launch possible late this year). HBO Max will feature more than 10,000 hours of content at the beginning, including Warner Bros. TV-produced Friends, Game of Thrones, Pretty Little Liars, The Fresh Prince of Bel Air and library content from Warner Bros., New Line, HBO, TNT, TBS, TruTV, TCM, Cartoon Network and Adult Swim.

Earlier Wednesday AT&T reported higher second-quarter operating income for its WarnerMedia entertainment unit amid growth at Turner, Warner Bros. and HBO, and said it lost 168,000 subscribers at its DirecTV Now streaming service in the period due to "higher prices and less promotional activity."

The service had lost 83,000 subscribers in the first quarter after a 267,000 drop in the fourth quarter of 2018. As of the end of June, the service had 1.3 million subscribers. Cowen analyst Colby Synesael had predicted DirecTV Now would lose 50,000 subscribers in the second quarter.

The company also lost 778,000 traditional pay TV subscribers in the second quarter between its DirecTV satellite TV and U-Verse services after losing 544,000 in the first quarter, citing "an increase in customers rolling off promotional discounts, competition and lower gross adds due to a focus on the long-term value customer base." 

WarnerMedia, led by CEO John Stankey, faced a key headwind at HBO amid a continued blackout on pay TV giant Dish Network, leading the premium TV service to lose subscribers in the latest quarter, but the entertainment arm still managed to report higher earnings across the board. "WarnerMedia continues to be accretive to earnings per share and cash flows," AT&T said.

Warner Bros. operating income jumped 30 percent in the second quarter to $440 million as film revenue rose 13.4 percent "primarily from home entertainment revenues" and video games and other revenue increased nearly 28 percent "largely from the successful launch of Mortal Kombat 11." Warner's television revenue dropped 14 percent due to lower licensing revenue.

HBO's operating income grew 0.7 percent to $573 million in the second quarter, even though subscription revenue declined "due to lower domestic linear subscribers." The company did not disclose a specific figure, but said the U.S. subscriber drop was "partially offset by higher digital and international growth" as "HBO’s award-winning, high-quality original content led to strong digital subscriber growth in the quarter." Content and other revenue increased "due to higher home entertainment and international licensing revenues."

At Turner, operating income rose 15 percent to $1.2 billion amid a nearly 4 percent increase in subscription revenue, as well as 33 percent growth in content and other revenue, partially offset by a 4.4 percent decline in advertising revenue. The company cited "higher domestic affiliate rates and growth at Turner’s international networks, saying the ad hit was due to "the shift of the NCAA Men's Final Four Championship game and lower audience delivery at Turner’s domestic entertainment network" along with unfavorable foreign exchange rates.

During an analyst call, Stephenson reported AT&T was "on track" with bringing down its debt load after acquiring Time Warner, with net debt down $18 billion during the last 12 months. He also pointed to "very strong" HBO subscriber growth during the latest quarter, as original HBO content drove digital customer growth, which offset a fall in U.S. linear TV subscribers.

AT&T execs did not break out the number of lost HBO subscribers. Stephenson said WarnerMedia needed to get a better handle on customer churn at HBO after Game of Thrones ended after eight seasons before it could detail its subscriber count.

Stephenson was also asked about CBS stations going dark on AT&T's DirecTV and U-Verse platforms after the two sides failed to come to terms on a new carriage agreement.

The AT&T boss said both sides were "not that wide" on terms for a new deal, with the phone giant having put a "fair offer" on the table five days ago, only to receive no response from CBS. "We're still sitting here in the dark and not having interactions with CBS," Stephenson told analysts.

CBS stations in more than a dozen cities, including New York, Los Angeles, Chicago, Philadelphia and other major markets are impacted, affecting about 6.6 million viewers. Stephenson ventured CBS' silence may be due to being "distracted" with other negotiations, a nod to possible merger talks with Viacom.

Stephenson was less optimistic about DirecTV's separate carriage dispute with local stations owned by Nexstar Media Group. "That one may take longer. We'll just have to be resolute on this one," he said as both parties were far apart on agreeing on final terms for a new carriage deal.