AT&T leaders touted WarnerMedia’s positive impact on its bottom line in the first full quarter of consolidated earnings since the telco giant completed its acquisition of HBO, Turner and Warner Bros. in June.
AT&T chairman-CEO Randall Stephenson said the addition of the unit now known as WarnerMedia was “immediately accretive in the first full quarter to the tune of five cents per share” during AT&T’s third quarter earnings call Wednesday morning with Wall Street analysts.
AT&T noted that WarnerMedia’s earnings grew even with a $200 million increase in content amortization costs for the unit in the quarter which climbed to $800 million, from a projected $600 million. “Even with the additional charge, WarnerMedia’s (earnings) still grew,” said John Stephens, AT&T’s senior exec VP and CFO.
WarnerMedia delivered a 7% gain in revenue to $8.2 billion, with operating income margin of 31.3%. Growth was driven by higher subscription revenue at HBO and Turner and increased TV content licensing revenue at Warner Bros.
The results reflect clear pressure on the advertising side at Turner. Domestic ad revenue slipped 4% while international ad sales fell by low double digits, a decline attributed in part to foreign exchange rate pressures. Stephenson and Stephens talked up the potential of its Xandr advanced advertising initiative.
The results so far of targeted ad sales on AT&T’s DirecTV platform have been encouraging even as traditional DirecTV suffers subscriber losses. The sales effort for inventory on the Turner ad-supporter cablers is just getting started. “We’ve got revenues growing 22% on a declining subscriber base,” Stephenson said, noting that the hope is to “drive growth rates that look that attractive on the Turner side.”
Theatrical revenue at Warner Bros. was flat for the quarter, an accomplishment given the studio’s strong theatrical and home entertainment slate in the year-ago quarter.
The execs emphasized AT&T’s plans for chopping down its debt load, which grew significantly with the $85 billion Time Warner acquisition, to 2.5 times earnings by the end of 2019. AT&T is looking at additional asset sales to help pay down that nut.
The subscriber picture at DirecTV is not pretty but execs emphasized the plan to “stabilize” revenue at the MVPD by next year. They’ve also curbed some of the aggressive discounting on the DirecTV Now low-cost bundle to avoid “low value, high churn customers” and to “align content costs with the price,” said John Donovan, CEO of AT&T Communications. The newly launched Watch TV skinny bundle is already “a profitable product,” he added.
(Pictured: AT&T chairman-CEO Randall Stephenson)