HBO and HBO Max Added 3 Million Subscribers in the First Quarter

HBO and HBO Max continue to grow market share and combined subscriber bases globally. Majority parent AT&T April 21 reported that the pay-TV platform and branded subscription streaming video service ended the first quarter (ended March 31) with 76.8 million subscribers worldwide. That’s up 3 million subs from the end of 2021.

By comparison, Netflix, despite shedding 200,000 net subs, ended Q1 with more than 221 million subs.

The numbers exclude free trials, basic and Cinemax subscribers. Domestic Max/HBO subs also consist of U.S. accounts with access to Max (including wholesale subs and members receiving access through bundled services with affiliates that may not have signed in) and HBO accounts.

Both Max and HBO are minority owned and majority operated by Discovery as part of the new Warner Bros. Discovery media company (formerly WarnerMedia) after the $43 billion asset sale by AT&T to Discovery.

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Global Max and HBO subscribers increased 12.8 million from 64 million subs at the end of 2020. AT&T said the growth was primarily driven by international as well as domestic retail subscriber gains, which it claimed reflected the strength of the programming slate.

At the end of the quarter, there were 48.6 million domestic Max and HBO subs versus 44.2 million in the year-ago quarter, up 4.4 million subs from the previous year period.

“AT&T has entered a new era, meeting this opportunistic moment from a position of flexibility and strength thanks to our evolving networks, enhanced customer experience, growing 5G and fiber customer base and a much stronger balance sheet,” AT&T CEO John Stankey said in a statement.

AT&T Names Accountant Samuel Di Piazza Chairman of Warner Bros. Discovery

AT&T may have sold away operational control of the pending Warner Bros. Discovery media company, but it still retains majority ownership of the erstwhile WarnerMedia unit. As a result, the telecom March 16 named the seven board members, including chairman, who will represent the company on the new 13-member board upon U.S. regulatory approval of the $43 billion transaction.

Samuel Di Piazza

Discovery, which has operational control of Warner Bros. Discovery via CEO David Zaslav, will appoint the other six board members.

The seven board members include three AT&T directors who will resign their seats when the merger is completed. They include Samuel Di Piazza, former executive at PricewaterhouseCoopers, who will be chairman of Warner Bros. Discovery; Debra Lee, former chair and CEO of BET Networks; and Geoffrey Yang, founding partner and managing director of Redpoint Ventures.

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Joining them are Li Haslett Chen (founder/CEO of Narrativ); Richard Fisher (former president of the Federal Reserve Bank of Dallas); Fazal Merchant (senior adviser to Sixth Street Partners); and Paul Price (most recently chief financial officer of Macy’s).

“These respected leaders bring a wealth of experience in finance, technology, media and entertainment, international trade, venture capital, and digital and direct-to-consumer platforms that is vitally important to the future of Warner Bros. Discovery,” AT&T CEO John Stankey said in a statement.

Discovery Shareholders Approve WarnerMedia Acquisition

Discovery March 11 announced that its shareholders have approved various matters relating to its $43 billion acquisition of WarnerMedia from AT&T to create the new media company Warner Bros. Discovery. The transaction affords Discovery minority ownership and majority control of WarnerMedia assets, which include Warner Bros. Pictures, Turner and HBO, including subscription streaming service HBO Max.

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At the special meeting of Discovery shareholder held earlier today (March 11), based on estimated preliminary voting results, stockholders voted to approve the charter amendment proposals, share issuance proposal and the advisory (non-binding) compensation proposal. The approvals mark the completion of one of the few remaining closing conditions for the merger.  These preliminary voting results will be updated through a regulatory filing to reflect the final certification of results from Discovery’s Inspector of Election.

The acquisition is expected to close early in the second quarter of 2022, subject to other customary closing conditions. The boards of directors of both AT&T and Discovery have now approved the transaction.

AT&T Favors WarnerMedia Spin-Off Over Split, Wall Street Disagrees

AT&T Feb. 1 announced that its board of directors has decided to spin off AT&T’s interest in WarnerMedia instead of a split enabling the telecom’s shareholders to exchange their shares for stock in the new Warner Bros. Discovery company in connection with the previously announced $43 billion transaction with Discovery.

The transaction, which will spin off 100% of AT&T’s interest in WarnerMedia to AT&T’s existing shareholders in a pro rata distribution, followed by the merger of WarnerMedia with Discovery, is expected to close in the second quarter of 2022.

Additionally, AT&T’s board approved an expected post-close annual dividend of $1.11 per AT&T share, to account for the distribution of WarnerMedia to AT&T shareholders, and to size the annual dividend payout at approximately 40% of projected free cash flow to enable investment in attractive growth opportunities.

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As previously disclosed, under the terms of the transaction, which is structured as an all-stock, Reverse Morris Trust transaction, AT&T will receive $43 billion (subject to working capital and other adjustments) in a combination of cash and other consideration, and AT&T’s shareholders will receive stock representing approximately 71% of the new company, Warner Bros. Discovery (WBD), on a fully diluted basis. Existing Discovery shareholders will own approximately 29% of the new company on a fully diluted basis.

On the closing date of the transaction, each AT&T shareholder will receive, on a tax-free basis, an estimated 0.24 shares of the new WBD common stock for each share of AT&T common stock held as of the record date for the pro rata distribution. The exact number of shares of WBD to be received by AT&T shareholders for each AT&T common share will be determined closer to the closing based on the number of shares of AT&T common stock outstanding and the number of shares of Discovery common stock outstanding on an as-converted and as-exercised basis. AT&T has approximately 7.2 billion fully diluted shares outstanding. AT&T shareholders will continue to hold the same number of shares of AT&T after the transaction closes.

“In evaluating the form of distribution, we were guided by one objective — executing the transaction in the most seamless manner possible to support long-term value generation,” AT&T CEO John Stankey said in a statement. “We are confident the spin-off achieves that objective because it’s simple, efficient and results in AT&T shareholders owning shares of both companies, each of which will have the ability to drive better returns in a manner consistent with their respective market opportunities.”

While the fiscal difference between a spin-off and split is largely in the weeds, AT&T’s announced dividend following the closing of the deal is almost half the telecom’s annual dividend of $2.08 per share. That news sent AT&T’s shares down almost 6% in premarket trading.

Stankey remained upbeat on the deal’s future impact for the telecom.

“We believe that the remaining AT&T and the new WBD are two equities that the market will want to own and the markets to support those equities will develop,” he said. “Rather than try to account for market volatility in the near-term and decide where to apportion value in the process of doing an exchange of shares, the spin-off distribution will let the market do what markets do best. We are confident both equities will soon be valued on the solid fundamentals and attractive prospects they represent.”

AT&T CEO: Pulling HBO Max Off Amazon Was ‘Smart Decision’

When AT&T disclosed last year that it was pulling access to HBO Max off the Amazon Channels platform, the move ended up costing the telecom giant about 1.8 million domestic subscribers through the third quarter, ended Sept. 30, 2021.

Fast forward to the present and Max and HBO ended 2021 with almost 74 million combined subscribers — exceeding company projections. At the same time, AT&T was able to end paying Amazon for any Max subscriber additions. Amazon reportedly also retained control of Max subscriber data.

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In a question posed on the Jan. 26 fiscal call, CEO John Stankey said the decision to bypass Amazon turned out to be a good one.

“We felt it was the right decision,” Stankey said. “I feel it was the right decision. I think it will even be more the right decision in a post-Discovery environment, as the [combined Warner Bros. Discovery] offer only gets stronger that’s in the market and the content that’s available. At the end of the day, you want full control of your customers.”

Stankey said he remains “confident” that the 1.8 million Max subs lost would return following the launch of Warner Bros. Discovery.

“It may take a couple of quarters for that to happen,” he said. “But there will eventually be a product out there that they’re going to look at and say they want to be part of. And better to have them there where you have direct access control of them, can market to them, know what they’re 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.”

Stankey reiterated that third-party SVOD subs originated through Amazon Channels really belong to Amazon.

“There are a lot of entities out there growing ‘direct-to-consumer customers’ that are behind the screen of the Amazon marketplace that really are Amazon’s direct-to-consumer customers,” he said. “They are not the media company’s direct-to-consumer customers.”

AT&T: WarnerMedia, Discovery Merger Expected to Close in Q2

Scuttlebutt about a possible first-quarter (ending March 31) close of AT&T’s $43 billion WarnerMedia minority stake asset sale to Discovery ended Jan. 26 after the telecom announced it expects the deal to be finalized in the second quarter (ending June 30). After consummation of the deal, AT&T will own 71% of the new Warner Bros. Discovery company, while Discovery will assume operational control.

AT&T CEO John Stankey, speaking on the fiscal call, said confidence regarding a Q2 closing is due to feedback from regulatory bodies domestically and abroad.

“We’ve had several milestones in the past couple weeks, including passage in the [European Union] and filing process with the SEC,” Stankey said. “You look at where we are with national regulatory domains, and our exchange with regulators, and all of that is going right to pattern as expected. We don’t see anything that causes us concern.”

AT&T is anticipating a $8 billion to $9 billion shareholder dividend following close of the transaction.

WarnerMedia assets include Warner Bros. Pictures, HBO and Turner. AT&T said the media company generated fourth quarter revenue of $9.9 billion, up 15.4% versus revenue of $8.58 billion in the year-ago quarter, driven by higher content and other revenue, including the partial recovery from prior-year impacts of the pandemic and higher subscription revenue, partially offset by lower advertising revenue.

Operating income in the quarter plummeted almost 38% to $1.6 billion from $2.58 billion in the previous-year period. Income dropped due to continued HBO Max investments and incremental advertising revenue sharing costs were partially offset by higher revenues and cost savings initiatives.

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As previously reported earlier this month, there were 73.8 million combined global HBO Max and HBO subscribers at the end of 2021, up 13.1 million year-over-year and up 4.3 million sequentially, driven by international as well as domestic retail subscriber gains. At the end of the quarter, there were 46.8 million domestic Max and HBO subs versus 41.5 million in the year-ago quarter, up 5.3 million year-over-year.

“A year and a half ago, we began simplifying our business to reposition AT&T for growth and we’re extremely pleased with how we’ve executed on that commitment,” Stankey said in a statement. “We ended 2021 the way we started it — by growing our customer relationships, running our operations more effectively and efficiently, and sharpening our focus. Our momentum is strong and we’re confident there is more opportunity to continue to grow our customer base and drive costs from the business.”

AT&T CEO: HBO Max ‘Unstoppable’ Following Discovery Merger

AT&T may be selling operational control of WarnerMedia and HBO Max to Discovery for $43 billion, but that didn’t stop the telecom’s CEO John Stankey from gushing about Max’s purported year-end achievements. AT&T said Max and HBO ended 2021 with 73.8 million combined subs, which exceeded previous year-end estimates of 73 million.

Speaking Jan. 5 at Citi’s AppsEconomy Conference, Stankey attributed the Max subscriber gains to “really good” international launches.

“We are now a product that has moved from just not only mid-40 million domestic subscribers, to one that is got momentum in Latin America,” Stankey said. “Our early launches in Europe have been really strong and have demonstrated that there is a market for the library [content] that Max brings … as well as our new content performing incredibly well in all markets, not just in the U.S.”

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Stankey said that following the launch of Max in May 2020, he hoped user engagement would reach one hour daily. He now says that projection was too conservative.

“We have been so far beyond that and have done so much better,” he said. “I just couldn’t be more pleased.”

The executive contends that with movie and TV program production emerging from the COVID hiatus, further rollout of HBO content will see “great longevity into the cultural zeitgeist” from Max users.

“The platform, the technology is getting better,” Stankey said. “More features are coming in. Like any software development that you have to globally scale, you’re always making tradeoffs between time to market and the functionality of the platform. Once 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, they can find more content because search starts to improve.”

Stankey lauded WarnerMedia CEO Jason Kilar for doing a “remarkable job” driving Max growth through the company’s controversial same-day theatrical/streaming movie release strategy in 2021. While Kilar is not expected to remain at the helm following the merger with Discovery, Stankey has faith Discovery CEO David Zaslav can take Max to greater heights.

“I think 2022 is going to be even a better year for [Max],” he said. “And once David 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.”

AT&T: HBO, HBO Max Ended 2021 With 73.8 Million Subs

WarnerMedia’s HBO and HBO Max platforms ended 2021 with an estimated 73.8 million combined subscribers — exceeding company estimates of 70 million to 73 million subs, according to an AT&T regulatory filing.

The disclosure comes ahead of the appearance today (Jan. 5) of the telecom’s CFO, Pascal Desroches, at the Citi AppsEconomy Conference.

The data would suggest WarnerMedia weathered two significant hurdles in 2021: The same-day theatrical/streaming movie release strategy, and the third quarter loss of almost 2 million HBO Max subs after the service’s departure from the Amazon Channels platform.

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Critics contend that after a strong start with Wonder Woman 1984 and Godzilla vs Kong, Warner Bros. theatrical releases suffered at the box office due to their concurrent free availability on Max.

Indeed, just two of the studio’s North American theatrical releases (Godzilla vs. Kong and Dune) sold more than $100 million worth of tickets in North America. Warner generated less than $650 million at the domestic box office, fourth among major studios.

The new year finds AT&T finalizing a $43 billion spin-off of WarnerMedia to Discovery for the new proposed Warner Bros. Discovery media company. With WarnerMedia CEO Jason Kilar likely exiting the company, the former Hulu boss continues to defend his controversial theatrical/streaming release strategy.

“We were the first one over the wall with this,” Kilar said in a media interview last fall. “So, we took a position of leadership. We’re the only company, for the last year-plus, that has delivered 18 movies. Nobody else has done that, nobody else has come even close. If you take a look at what the exhibitors have been saying, we were their lifeline in their period of greatest need.”

AT&T CEO: Congressional Concerns Over WarnerMedia Sale ‘Unfounded’

On the heels of concerns from some Democrat lawmakers regarding AT&T’s $43 billion minority stake asset sale of WarnerMedia to Discovery, the telecom’s CEO said the issues presented by lawmakers are “unfounded,” but expected for a mega merger that includes Warner Bros., HBO and Turner and the parent of HGTV and other media brands.

Rep. Joaquin Castro (TX), Sen. Elizabeth Warren (MA), Rep. David Cicilline (RI), Rep. Pramila Jayapal (WA) and 29 other Congressional members sent a letter to the U.S. Attorney General Merrick Garland asking the DOJ to examine whether the merger would reduce diverse content in a more consolidated and less competitive market.

“I believe the context of our discussion with regulators up to this point has centered around those [diversity] issues, and we feel very good about the data we put on the table that have, it’s clearly indicated that there’s nothing unusual about this transaction,” Stankey told the UBS Global TMT Virtual Conference on Dec. 6.

Castro contends there remains a lack of diversity of people of color in media. The lawmaker cited a 2021 analysis by the Latino Donor Collaborative found that Latinos account for less than 3% of TV show leads, showrunners and directors.

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“Latinos are nearly 20% of the U.S. population, one-in-five Americans, but we’re almost invisible on-screen and behind the camera,” Castro wrote in the letter.

Stankey said issues involving minority representation may have been relative to past media mergers, but not so today.

“I would also tell you that those [Congressional] letters … are not very strong in the foundation of their concerns, nor do I have concerns about what they’re articulating in terms of our ability to navigate through that,” Stankey said.

U.S. Congress Democrats Seek Further Scrutiny on WarnerMedia Sale to Discovery

More than 30 democratic members of Congress (from both the House and Senate) have sent a joint letter to the Justice Department seeking further scrutiny in AT&T’s planned $43 billion minority stake sale to Discovery Inc. Under terms of the sale, Discovery would assume operational control of WarnerMedia, which has assets that include Warner Bros. Pictures, HBO and Turner.

Congressman Joaquin Castro (TX), Senator Elizabeth Warren (MA), Congressman David Cicilline (RI), chair of the antitrust subcommittee, Congresswoman Pramila Jayapal (WA), chair of the Congressional progressive caucus, and 29 other Congressional members sent the letter to U.S. Attorney General Merrick Garland and Assistant Attorney General Jonathan Kanter urging the DOJ to investigate for possible violations of antitrust laws.

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In addition, the members are requesting Garland examine whether the proposed merger will reduce diverse content in a more consolidated and less competitive market.

“For far too long, Hollywood studios have excluded Latinos from opportunities in the industry, perpetuating dangerous stereotypes and inaccurate portrayals,” Castro said in a statement. “Latinos are nearly 20% of the U.S. population, one-in-five Americans, but we’re almost invisible on-screen and behind the camera. I’m deeply concerned that the proposed merger between Discovery and WarnerMedia will lead to concentrated exclusion, harming consumers and workers — especially Latinos who are already the most underrepresented group.”

“We must stop harmful mergers, and the Department of Justice should thoroughly investigate this proposed merger to ensure diverse content and workers are protected,” said Warren, a longtime critic of the U.S. corporate business culture.

AT&T, which acquired the former Time Warner for $85 billion, soon thereafter began looking for ways to reduce its debt load while maintaining ownership in select assets (WarnerMedia and DirecTV). The telecom’s CFO Pascal Desroches in September said he still expects the deal to close in the first half of 2022.