AT&T lost 473,000 video subscribers in its second quarter, but the company spent much its earnings call tuned into another video business that it’s also spinning out.
The Dallas firm announced earnings of 89 cents a share, beating analyst expectations, and net income of $1.87 billion. AT&T’s wireless business did most of the work, achieving 789,000 postpaid phone net adds in the quarter and recording an operating income of $6 billion, up 3.4% from the year-ago quarter.
But to AT&T, Q2 represented a trio of successes — wireless, fiber broadband and HBO Max.
“We’re pleased with our performance and our momentum is strong,” CEO John Stankey said in the earnings release. “For the fourth consecutive quarter, we saw good subscriber growth across wireless, fiber and HBO Max.”
AT&T’s fiber high-speed internet added 246,000 customers, but customer losses at the company’s hybrid-fiber service once marketed as U-verse as well as the DSL service it stopped selling last October nearly zeroed out net customer wireline additions to 28,000.
HBO, however, shone much brighter. Globally, it won another 12 million subscribers to HBO and HBO Max, leading AT&T to revise its year-end subscriber forecast to a range of 70 million to 73 million.
“Customers love HBO Max, and subscriber growth is exceeding expectations,” CEO Pascal Desroches said on the call. Citing particularly strong demand in Latin America, he added that AT&T may push back HBO Max’s debut in some European countries to 2022 to capitalize on that potential south of the U.S.
HBO Max and the WarnerMedia division above it are on their way to becoming an investment instead of an operation for AT&T as the company proceeds with the $43 billion spinoff of WarnerMedia into a new company to be run by Discovery, Inc.
"Right now, it's a lot of work with the regulatory agencies,” Stankey said of the work needed for the deal that will unwind AT&T’s $108.7 billion purchase of WarnerMedia in 2018. “There is nothing we see in that that has been particularly problematic.”
Stankey said another exit of AT&T’s media strategy — its sale of 30% of its DirecTV, U-verse and AT&T TV services to TPG Capital and the subsequent creation of a new company to run those brands — should close within weeks.
“We want to hit a strong exit velocity for both of these businesses,” Stankey said of the WarnerMedia and pay-TV spinouts.
In a note breaking down the earnings, MoffettNathanson gave AT&T some credit for slowing the rate of decline in video.
“Their loss of 473K video subscribers was substantially better than last year (a 886K subscriber loss),” the note read. “AT&T’s ‘Premium Video’ subscriber base, which lumps U-verse and DirecTV together, is still shrinking by 13.0% YoY. Still, that marks the fourth straight quarter of deceleration in the rate of decline.”
Those analysts, however, also warned that AT&T might be pivoting away from the video and back to wireless when its 5G faces a disadvantage: “They face a 5G future, for at least the next three or four years, where T-Mobile will have a decided network advantage (and lower prices).”
Throughout the call, AT&T executives emphasized the theme of recovering from the pandemic, but WarnerMedia CEO Jason Kilar noted one pandemic-inflicted shift that he doesn’t expect to flip back: shorter theater-only release windows for movies that in some cases may allow simultaneous theatrical and streaming debuts.
“We’ll have shorter windows for a portion of our slate, 45 days specifically,” he said. “But Warner Brothers is also producing 10 motion pictures that will be available on HBO Max day one.”