AT&T / WarnerMedia’s HBO MAX performance

In October 2016, AT&T announced it would acquire Time Warner and completed the acquisition in June 2018 for $85.4bn ($108.7bn including debt) branding the business as WarnerMedia.

Despite the COVID-19 pandemic, which created real disadvantages in a number of areas, AT&T successfully launched HBO MAX in May 2020.

Indoor restrictions affected its 5,550 retail store footprint, which would have been heavily involved driving HBO MAX adoption, especially across its wireless, broadband and pay-TV offerings. Cinema closures impacted movie releases and resulted in AT&T adopting a unique hybrid distribution model whereby movies would be released on HBO MAX simultaneously alongside the theatrical release. Live sports also shut down as did content production for HBO MAX originals.

In June 2020, one month after launch, AT&T reported a combined subscriber base of 36.3 million US HBO and HBO MAX subscribers, up from 34.6 million domestic customers at the end of 2019. The operator reported a total of 4.1 million subscribers had activated their MAX account. Almost three million were retail HBO MAX subscribers18 and more than one million were wholesale subscribers through AT&T. In effect, a large number of HBO subscribers from wholesale partners had yet to switch across to HBO MAX.

AT&T noted that while more rapid activation occurred amongst existing HBO digital subscribers, more had to be done to educate and motivate the exclusively linear subscriber base and AT&T would work with wholesale partners to drive the activation rates.

In Q4 2020 the WarnerMedia unit wrote down $780 million of its business due to the impact of COVID-19 on content production and inventory with $520 million accounting for the closure of theatres and the dual same day release of movies on HBO MAX.

AT&T finished 2020 with almost 6.9 million retail HBO MAX customers and a cumulative HBO MAX activation rate of 17.1 million subscribers.

In April 2021, AT&T reported 11 million customers combining one or more of its connectivity products with HBO or HBO MAX, and that same day theatrical releases had been a catalyst for HBO MAX subscriptions despite underpinning a write down to the business.

In October 2021 AT&T reported a global HBO and HBO MAX subscription base of 69.4 million subscribers consisting of 45.18 million domestic and 24.23 million international. Domestic wholesale subscribers fell in Q3 2021 reflecting AT&T’s decision to “no longer cede customer control through Amazon’s channels offering” and close this element of Amazon’s wholesale platform.

AT&T now blends HBO and HBO MAX subscriptions and no longer reports HBO MAX activations.

HBO MAX performance from launch

In 2019 AT&T originally set out to obtain 50 million HBO MAX domestic subscribers by 2025. It now raised global expectations to 70–73 million by the end of 2021 on the back of launching its AVoD domestic service as well as HBO MAX (SVoD) internationally in Latin America in June 2021 and in Spain and Northern Europe in October 2021. AT&T expects the bulk of HBO MAX subscriptions to come from Latin America in the second half of 2021. It expects to have between 120–150 million subscribers by 2025.

The graphic below compares HBO MAX ARPU to competitors Netflix and Disney+.

Netflix, Disney, HBO/HBO MAX ARPU, Q3 2021

AT&T Spins off WarnerMedia

In May 2021, AT&T announced it would spin off WarnerMedia into a new entity with Discovery, a media company specialising in unscripted content. Subject to approval by mid-2022, the deal is worth $43bn to AT&T in the form of cash, debt securities and WarnerMedia’s retention of certain debt. 

STL Partner’s report Lessons from AT&T’s bruising entertainment experience looks at AT&T’s media purchases of DirecTV and Time Warner which combined cost the company over $175bn. AT&T believed owning TV and streaming subscription video on demand (SVoD) services would take its broadband communications business into the next decade, spurring growth in fixed and mobile broadband, reducing churn, growing advertising and new revenue streams in global SVoD streaming. However, global streaming services require significant investment in original content production as does rolling out 5G and fibre nationwide, and AT&T found itself unable to do both under one roof with the approach it applied.

Our report looks at AT&T’s decisions and actions over six years running DirecTV and WarnerMedia and their consequences, and the lessons for others attempting adjacent market moves and M&A.