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HBO Pay-TV Customers Will Have Access to WarnerMedia SVOD Service, AT&T Chief Says

AT&T shed some new light on plans for the forthcoming WarnerMedia subscription-streaming service, with chairman and CEO Randall Stephenson explaining that HBO customers on pay-TV operators — like Comcast — will have access to the new SVOD service bundled in.

Stephenson’s point: that WarnerMedia’s streaming service, centered around the “luxury brand” of HBO, will come to market in a way that will minimize its potential to fuel cord-cutting at cable and satellite TV partners.

AT&T expects pay-TV operators like Comcast are “going to be an important partner to all of this… And then we want to just continue to push digital distribution on top of that as well,” said Stephenson, speaking Tuesday at the J.P. Morgan Global Technology, Media and Communications Conference in Boston. For example, he said, Comcast customers who buy an HBO subscription will get access to the WarnerMedia SVOD service included.

WarnerMedia expects to launch a beta version of its direct-to-consumer streaming service in the fourth quarter of 2019, with a “full-scale launch” in Q1 2020, Stephenson said. AT&T hasn’t disclosed expected pricing but has said it plans to hold a media day in September or October to show off the service.

The new WarnerMedia SVOD service “will become a significant driver of our growth,” Stephenson predicted. “We think this is in the tens of millions of subscribers.”

In anticipation of HBO’s “Game of Thrones” eight-season run coming to an end this spring, the premium programmer — under WarnerMedia CEO John Stankey and Bob Greenblatt, recently tapped as chairman of WarnerMedia Entertainment — have “stepped up the investment in HBO considerably this year,” Stephenson said. He called out forthcoming debuts of new seasons of “Big Little Lies” and “Succession” and miniseries “Chernobyl.”

While the WarnerMedia streaming service will be anchored by HBO, “we’ll surround that with the Warner Bros. library,” Stephenson said. In addition to a deep catalog of movies ranging from “Casablanca” to “Aquaman” and “A Star Is Born,” Warner Bros. holds rights to a large number of TV shows, including “Friends,” “Seinfeld” and “The Big Bang Theory,” the CEO said.

“We’ll be bringing a lot of these licensing rights back to ourselves, back to our SVOD product,” Stephenson said. With regard to “Friends,” WB reupped its deal with Netflix for an estimated $100 million, giving it exclusive streaming rights through the end of 2019 — after which it can be added to WarnerMedia’s service as well.

Overall, WarnerMedia spends $14 billion per year on original content and licensed programming. “What you’ll see happen over time, more and more of that $14 billion will be directed to content for our own platforms,” Stephenson said.

AT&T has said the WarnerMedia SVOD service will include some advertising, in addition to subscription fees.

Stephenson also addressed the ongoing subscriber losses at DirecTV, saying 2019 will continue to be a year “where we’re going to clean up the video business,” renegotiating programming contracts and experiencing high churn for low-value customers.

In the first quarter of 2019, AT&T dropped 544,000 net subscribers across DirecTV and U-verse TV, to stand at 22.4 million at quarter’s end. That included a 83,000 sequential decline for DirecTV Now, down 5.2% in the period to 1.5 million customers, as AT&T ended promotional pricing, hiked rates on existing packages, and rolled out two new bundles with HBO.

In AT&T’s pay-TV business, “the churn is 100% driven by the cleanup of the customer base,” Stephenson said. He claimed “the lion’s share” of the DirecTV/U-verse customer base are high-value customers and “remarkably stable” in terms of churn.

Stephenson again called out DirecTV’s plans for a Q4 2019 launch of a “thin-client solution,” an internet-streaming set-top box that is a satellite TV replacement product. That will cuts DirecTV’s customer-acquisition costs by half, he claimed, and let DirecTV “meet a price point in the market that’s actually profitable,” he said. “That will kind of be the workhorse for the video business the next couple of years.”

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