In a conference call with Wall Street analysts, AT&T CEO John Stankey defended the decision to separate HBO Max from Amazon’s channels business.
While the move last year caused a significant short-term loss of subscriber momentum, the gain in control of data and customer insight will pay off in the long term, the executive maintained. Other companies, he noted, are claiming to have direct access to consumers but instead rely on Amazon and other tech giants to do the heavy lifting.
“Better to have them there while you have direct access and control of them and can market to them and 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 your customer,” Stankey said. Without naming names, he added, “There are a lot of entities out there that are growing, quote-unquote, ‘direct-to-consumer’ customers that are behind the screen of the Amazon marketplace that really are Amazon’s DTC customers. They are not the media company’s DTC customers.”
He also took a not-very-veiled shot at Disney and other competitors on the lower end of the price spectrum. With HBO Max priced at $15 a month, WarnerMedia did not have to “struggle” to establish itself as a revenue generator, he said. Average revenue per user, or ARPU, was $11.15 domestically in the quarter ending December 31. A cheaper, ad-supported tier of HBO Max, whose base was not quantified, launched last June.
Stankey’s comments came after AT&T posted better-than-expected earnings, including a fourth-quarter uptick in subscribers to HBO and HBO Max. Globally, they combined to close the year with 73.8 million subscribers, including 46.8 million in the U.S.
“We said it was going to happen, and it happened. We said the market was going to come to us on pricing,” Stankey said. “Lo and behold, we are no longer the high-priced offer in the market.” Netflix recently upped the price of its most popular U.S. subscription tier to $15.49 a month, leapfrogging HBO Max to become the costliest service. Disney also phased in a dollar-a-month increase on Disney+ but remains challenged by comparison in terms of its ARPU, which is less than half of that of HBO Max.
Because of Netflix’s price hike, which Stankey alluded to in general terms without mentioning the company by name, HBO Max will have more upside in the U.S., the exec said. Combined with linear HBO, it ended 2021 with 46.8 million subscribers after shedding 1.8 million in the third quarter due to the Amazon reshuffling. The domestic tally was up 5.3 million compared with 2020. While that’s not exactly an eye-popping gain given the many buzzworthy series along with Warner Bros’ entire movie slate all coming to HBO Max, but Stankey pointed to the built-in base of HBO and the superior ARPU, noting the company had long expected to “be different” than rivals about tackling streaming. “We don’t have the struggles of maybe some other products that came in at very low prices are going to have to try to move up that ARPU continuum,” he said
Among the crop of new streaming entrants, Apple TV+ and the ad-supported tiers of Paramount+ and NBCUniversal’s Peacock are all $5 a month.
Stankey had publicly groused about the role played by Amazon and other tech companies in 2019 and 2020 as WarnerMedia was looking to negotiate distribution deals with major streaming gatekeepers Roku and Amazon. Those agreements came months after the May 2020 launch of HBO Max. Not only was the Amazon call the right one, Stankey asserted, but “it will be even more of a right decision in a post-Discovery environment, when the offer only gets stronger.”
Speaking of that $43 billion merger of Discovery and WarnerMedia, Stankey said he expects the deal to be approved by the Department of Justice sooner than anticipated. Wall Streeters asked him to clarify.
“When we set the transaction up and announced it I think we indicated it was really important for us to put a [deal] out there that that we could work through the regulatory process, and the team has done exactly that,” he said.
Milestones in that process in recent weeks from EU clearance to completing the filing process with the SEC and “exchanges with domestic regulators,” he said. “All that is going right to pattern, as we expected, and I don’t see anything that causes us concern, consequently raising our confidence level that we can tighten that timeframe, that we will have everything ready, lined up and ready to go, sometime during the second quarter.”
Initial guidance from AT&T and Discovery had been for a mid-year completion of the deal.
“There’s work to be done, there always is, there are a lot of moving parts, but based on how these things go I feel about as good as I can feel at this point,” Stankey said. “We are now moving into that mode of the cycle where we are making the final preparations, as opposed to anticipating what we have to work through.”
He promised clarity on the mechanics of the WarnerMedia divestiture, via either spinoff or split, by an investor meeting scheduled for March, at a date still TBA.
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