AT&T CEO John Stankey told investors he expects HBO Max to recoup all of the subscribers lost last fall after WarnerMedia pulled HBO from the Amazon Prime Video Channels marketplace in September, amid ongoing agita in the TV industry about the fees Amazon takes for facilitating sales of subscription TV services.
During AT&T’s hourlong fourth-quarter earnings call with investors on Wednesday, Stankey also noted that market conditions have spurred price hikes by HBO Max rivals, which means that HBO Max is not the most expensive of the major domestic players at present. Stankey didn’t mention Netflix by name, but the inference was clear.
Last October, AT&T reported that HBO and HBO Max lost about 1.8 million subscribers in the third quarter after the disengagement from Amazon in the previous month. As WarnerMedia prepares for its spinoff with Discovery, the combined content firepower of the two companies should be compelling enough to consumers without needing the sales support from Amazon.
“We felt it was the right decision,” Stankey said of withdrawing from Amazon. “I think it will even be more the right decision in a post-Discovery environment, as the offer only gets stronger that’s in the market and the content that’s available,” Stankey said. “At the end of the day, you want full control of your customers and I’m confident with the strength of the offer that will be in the market, those customers are all going to come back into the offer. It may take a couple of quarters for that to happen. But there will eventually be a product out there that they are going to look at and say they want to be part of. “
Stankey was blunt about questioning the value of subscriptions that come through Amazon Prime Video Channels, and whether those should actually be considered DTC customers for the content owners. The limitations of having customers flow through Amazon’s pipes are significant for content owners, he asserted.
“Better to have (customers) there where you have direct-access control of them to market to them, know what they are doing than to have it be in some black box where you absolutely have no idea what somebody else is doing with aggregating your content and your exposure to the customer,” he said. “And I would point that out again, that is what our customer base is. There are a lot of entities out there growing quote unquote direct-to-consumer customers that are behind the screen of the Amazon marketplace that really are Amazon’s direct-to-consumer customers, they are not the media company’s direct-to-consumer customers.”
The telco earlier this month pre-announced Q4 results for HBO/HBO Max subscribers, beating its own forecast: The services at year-end tallied 73.8 million combined global subs, up 4.3 million sequentially, over the high end of AT&T’s guidance of 70 million-73 million. HBO and HBO Max ended 2021 with 46.8 million U.S. subscribers, a net gain of 1.6 million in Q4 (after a 1.9 million net loss in the prior quarter stemming from the end of Amazon’s HBO distribution deal). Domestic average revenue per HBO/HBO Max subscriber was $11.15 in the quarter, versus ARPU of $11.82 in Q3 2021 and $11.46 in the year-earlier period.
HBO had an estimated 5 million subscribers through the Amazon deal. On Wednesday, AT&T reported its Q4 2021 direct-to-consumer (HBO and HBO Max) subscription revenue increased by 11.5% year-over-year, to $1.9 billion, but was down sequentially from $2 billion in Q3 (a decline AT&T said was due to the termination of the HBO reseller deal with Amazon).
Stankey also tossed a little shade at Netflix’s move earlier this month to raise the price of its standard plan — its most popular tier, which provides two simultaneous HD streams — to $15.49 per month. That move rattled some Netflix investors as it pushed passed the ceiling previously set by HBO Max. Stankey cast it as an inevitable development given the high cost of content, marketing and subscriber acquisition costs.
“The nice part about that is, and we said this was going to happen and it happened, we said the market was going to come to us on pricing, and lo and behold, we are no longer the high-priced offer in the market,” Stankey said. “The nice part about that is we think it will allow us to have domestic growth as we move forward, but the base is in a really really good place as a result of that. We don’t have the struggles that maybe some other products that came in at very low prices are going to have to kind of try to move up that ARPU continuum.”
Direct costs supporting the DTC business climbed about 44%, to $2.3 billion in Q4 of 2021 versus $1.6 billion in the year-ago quarter. On the call, AT&T CFO Pascal Desroches said 2022 is expected to be the “peak investment year” for HBO Max.
“We expect domestic growth to be more suppressed than international growth as we move forward,” Stankey said. “We’re in a great position. We are sitting in a large domestic base with a very high ARPU.”
AT&T topped Wall Street estimates for the fourth quarter of 2021, with WarnerMedia revenue gains driving top-line results — helped by strong growth of HBO Max — although the division’s operating income dropped 38% on higher costs.
The company also announced Wednesday that it expects the WarnerMedia spinoff and merger with Discovery to close in the second quarter (previously, it pegged the close for mid-2022). AT&T said it plans to host a virtual analyst event in the first half of March, providing financial guidance for what the telco’s communications business will look like post-WarnerMedia.
(Pictured: HBO’s “Euphoria”)