AT&T (T): HBO Max sees strong engagement despite WarnerMedia’s COVID-19 struggles

AT&T Inc. (NYSE: T) reported a 9% decline in total revenues and a 7% decline in adjusted EPS for the second quarter of 2020. While the bottom line came in better than analysts’ projections, the top line missed targets. The company saw revenue declines across all its segments as well as sub-divisions due to the impacts from the COVID-19 pandemic.

WarnerMedia

The WarnerMedia segment, which consists of the Turner, HBO and Warner Bros. divisions, saw a 22.9% decline in revenues to $6.8 billion, as the coronavirus outbreak halted content production and impacted theatrical releases and sports advertising.

Lower revenues from regional sports networks hurt subscription revenues at Turner which fell 5% year-over-year. Advertising revenues fell 37% due to the suspension of the NBA season, which impacted Turner’s domestic entertainment networks negatively and contributed to lower audience delivery.

Revenues at Warner Bros. were impacted by declines in theatrical revenues due to the postponement of releases and closures of movie theatres, and also by lower games and other revenues. These declines were partly offset by higher television revenues due to higher sales to HBO Max. Television product revenues increased 38% in the quarter.

HBO revenues decreased 5% year-over-year due to lower subscription as well as content and other revenues. Subscription revenues fell 6% due to lower domestic linear subscribers. A growth in digital subscribers helped in partly offsetting the decline in linear subscribers. Lower content licensing impacted content and other revenues which fell 7%.

HBO Max

HBO Max launched in May with 10,000 hours of premium content at a price of $14.99 per month. AT&T said the rollout of HBO Max was successful and the service is seeing strong engagement, which is significantly higher compared to HBO NOW. The company added that the service is tracking towards its initial targets in terms of subscribers, activations and revenues.

The total number of domestic HBO Max and HBO subscribers amounted to 36.3 million in the second quarter, up 5% from the end of 2019. HBO Max activations totaled 4.1 million. Its close rival Disney + had 54.5 million subscribers in May.

Another major player Netflix (NASDAQ: NFLX) expects its subscriber growth to decelerate in the second half of 2020 as some demand seems to have been pulled forward into the first half from the second half of the year.

Like Disney +, HBO Max has a trove of strong and attractive content like the all-time favorite shows Friends and The Big Bang Theory as well as the Game of Thrones series. It also has movies from the DC universe as well as original content like Love Life.

HBO Max continues to be a priority for AT&T and the company is investing significantly in this service. Even amid tough competition in the streaming space, its content and connectivity should be an advantage for HBO Max and AT&T.

Outlook

AT&T expects its third quarter revenues to be impacted by the timing of advertising revenues based on the postponement or restarting of sporting events, as well as by lower revenues from the closure of movie theaters and postponement of theatrical releases. The results are also likely to be impacted by an uptick in the disconnection of linear TV services due to the pandemic.

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