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HBO/HBO Max exceeds subscriber number expectations for Q4

By Carreen Maloney

20:00, 6 January 2022

smartphone with HBO Max logo in tub of popcorn
HBO and HBO Max will offer wider range of content in 2022, AT&T executive says

In the fiercely competitive content streaming market, vying for the prize of more consumer eyeballs is a constant battle. But AT&T’s HBO and HBO Max managed to finish the year with 800,000 more subscribers globally than the top end of management’s earlier forecast.

The sneak peek into fourth-quarter subscriber results was presented at the virtual Citi’s AppsEconomy conference on 5 January, with AT&T (T) revealing that 73.8 million people subscribed to HBO and HBO Max in 2021, surpassing the prior guidance given by management that predicted 70 to 73 million subscribers.

That’s a jump of nearly 78% when compared to the fourth quarter of 2020, when HBO and HBO Max had just 41.5 million subscribers combined. And it is a higher percentage increase than the latest numbers provided by two of its rivals, Netflix and Disney Plus.

Netflix (NFLX) isn’t planning to release its fourth-quarter financial results for 2021 until 20 January, but its Q3 report showed global streaming paid memberships were close to 214 million in Q3, up from approximately 195 million year-over-year, an increase of about 9%. Netflix had previously predicted it would have 222 million subscribers by the end of 2021, which would mean a slowing of its subscriber growth rate.

Covid slowed content production

Meanwhile, JP Morgan analyst Doug Anmuth lowered his target for the Netflix share price from $750 to $725 in a research note released on 6 January, although he kept his rating at overweight, according to a report published by Barrons. Anmuth now estimates the company had a net addition of 6.25 million subscribers in Q4, down from the 8.5 million that Netflix had earlier predicted.

Disney Plus, the streaming service owned by Walt Disney (DIS), ended its 2021 fiscal fourth quarter on 2 October, and was unable to match HBO and HBO Max’s growth. But it did log a much higher percentage increase in subscribers than Netflix. Disney Plus had more than 118.1 million subscribers in Q4, up from 73.7 million in the same quarter of 2020, a 60% gain. Its ESPN Plus streaming service also demonstrated a sizeable increase of 66%, from 10.3 million to 17.1 million. Its Hulu platform added 7.2 million subscribers, going from 36.6 million to 43.8 million.

Netflix, Disney and AT&T all reported enduring delays and disruptions to production schedules that occurred because of the challenges involved with keeping crews safe during the Covid pandemic, which ultimately diminished new content offerings.

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Consumer cultural zeitgeist

AT&T acquired HBO’s streaming services when it purchased Time Warner for $85bn (£63bn) in 2018. The original HBO cable channel started back in 1972 and is often accessed through a pay TV provider. HBO Max launched in May 2020 and hosts more content than its predecessor.

The HBO and HBO Max figures were discussed by John Stankey, AT&T’s CEO, president and director, at Citi’s AppsEconomy conference. He explained the factors that drove the increase in subscribers.

“The outperformance, I would say, came from really good international launches,” said Stankey, who answered questions posed for almost an hour by Citigroup telecom analyst Michael Rollins.

“We are now a product that has moved from just not only a domestic strength of being in the mid-40 millions of domestic subscribers, to one that has got momentum in Latin America throughout the entire continent. Our early launches in Europe have been really strong and have demonstrated that there is a market for the strength of the library that HBO Max brings into that market, as well as our new content is performing incredibly well in all markets, not just domestically in the US.”

Demographic aperture will widen

As the world is learning to cope with Covid as a constant reality in the foreseeable future, content creation is gearing back up again, and 2022 will be a time to “broaden the demographic aperture” of HBO Max and HBO’s programming line-up, Stankey said.

The popularity of HBO’s streaming service has been fuelled by recent hits such as The White Lotus, Succession, and The Sex Lives of College Girls. Stankey said that going forward, consumers will be offered more content that appeals to a broader demographic.

“The HBO content does incredibly well and has had just such great longevity into the cultural zeitgeist of consumers of this kind of service, but we also know that we can broaden the aperture a little bit with similar content that has that kind of quality but maybe a little different orientation in terms of the demos it applies to. And you'’e going to start seeing that start to roll into things in ’22.”


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New software features planned

HBO is also planning to add more features to its software, allowing users to search more intuitively to discover content that appeals to them. That has the potential to increase the hours they spend watching on the platform.

“Like any software development that you have to globally scale, you're always making trade-offs between time to market and the functionality of the platform,” Stankey said. “As you get through another year of those cycles, the product gets better, it adds more features. It does things where people can engage with it more.”

Stankey also talked about AT&T’s plan to merge its entertainment and media arm, WarnerMedia –formerly Time Warner – with the pay television network Discovery (DISCA). The deal would pull together WarnerMedia assets such as HBO, CNN and TBS with Discovery’s content including Animal Planet, A&E, HGTV and TLC.

“Once David (Zaslav, Discovery’s president and CEO) closes Discovery and can start to bring in the strength of what Discovery does so well into that portfolio, it’s going to be unstoppable,” Stankey said.

Near-term catalysts

In a Morgan Stanley research report released on 16 December titled WarnerMedia Divestiture Should Unlock Value, equity analyst Simon Flannery upgraded AT&T to overweight with a share price target of $28, although that was lower than his previous target of $32.

Flannery cited “important near-term catalysts” including the Discovery merger as one reason for his optimism, along with AT&T’s “solid financial and operating outlook” and “attractive absolute and relative valuation.”

“The stock is currently sitting near multi-decade lows, having fallen around 22% YTD,” Flannery wrote. “At these levels, we believe the stock is discounting an overly negative outlook; indeed, less than one-third of the covering analysts (have) a positive rating on the stock. Solid operating performance should continue despite competitive threats. While the stock action has been challenging, AT&T’s financial and operating performance has been solid so far this year, with KPIs exceeding expectations.”

EU gave go-ahead

On 3 January, the proposed WarnerMedia and Discovery merger received the approval of the European Commission, the European Union’s executive branch. In a press release, the commission explained its reasoning behind the decision:

“The commission concluded that the proposed acquisition would raise no competition concerns given that, following the transaction, the combined entity would continue to face sufficient competition from other players. In addition, the commission found no competition concerns stemming from the vertical and conglomerate links between the activities of the companies, since the latter would not have the ability nor the incentive to engage in foreclosure practices.”

Following the script

Getting the green light from the EU was an encouraging sign for Stankey, who is confident regulatory bodies in other jurisdictions will rule similarly. He said the approval process in the US hasn’t held any surprises so far.

“The process we've been going through with the US regulators and particularly the DOJ (US Department of Justice) has been following kind of the script and the expectations when we set up the deal and we gave you guidance. I feel very comfortable with how that’s going. I think those conversations have been constructive and they’ve been responsive both ways.”

AT&T anticipates closing the merger deal in mid-2022.

Read more: UK service sector slumps to ten-month low on Omicron impact

Markets in this article

Netflix Inc (Extended Hours)
479.97 USD
1.06 +0.220%
Netflix Inc (Extended Hours)
479.97 USD
1.06 +0.220%
Walt Disney Co (Extended Hours)
92.51 USD
-2.74 -2.880%
Walt Disney Co (Extended Hours)
92.51 USD
-2.74 -2.880%

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