The long-awaited, ad-supported tier of the service will launch in the U.S. in June, the company said.
The new subscriber target is a significant bump from the range of 75 million to 90 million initially put forward by the company in October 2019. As of the end of 2020, it was at 41.5 million domestically when combined with traditional HBO. The historical peak for HBO globally has been a bit north of the 140 million mark. Reaching that level with a direct-to-consumer component promises fatter margins as opposed to the wholesale linear business. The number of subscribers to HBO who had activated their HBO Max subscriptions stood at 17.2 million in the U.S. as of the fourth quarter. The international rollout of HBO Max is under way to 60 countries over the course of the year.
Combined subscribers will reach 67 million to 70 million by the end of 2021, the company said. Over the next five years, revenue in the HBO division is expected to more than double to $15 billion from the $6.8 billion reported in 2020, AT&T added.
HBO Max launched in a crowded field, with Disney+, NBCUniversal’s Peacock and Apple TV+ already in the market and Paramount+ and Discovery+ also getting set to challenge Netflix. While the service struggled initially due to Covid-19 production issues and internal management upheaval, it has recently gained more traction. One source of its momentum has raised some hackles in Hollywood: the decision to put Warner Bros movies on the service at the same time they reach theaters.
AT&T released the new outlook along with some other numbers for its investor day later today. It said financial guidance for 2021 remains unchanged. WarnerMedia chief Jason Kilar, the founding Hulu CEO and Amazon executive who took the helm of the entertainment operation nearly a year ago, will be among several execs speaking during the investor day. Among other likely topics will be the company’s recent sale of 30% of DirecTV.
Pricing for the AVOD tier has not yet been disclosed. HBO Max costs $15 a month for those who don’t already pay for HBO and the company has long believed a lower-cost offering with advertising would appeal to customers. Along with the timeline for the AVOD rollout, AT&T also said HBO Max will get to 60 territories outside the U.S. in 2021. Of that total, it will reach 39 in Latin America and the Caribbean by late June and 21 in Europe in the second half of the year.
In other projections, AT&T said it will increase its fiber footprint by an additional 3 million customer locations across more than 90 metro areas in 2021. It will also begin deploying C-band spectrum, which it acquired in an FCC-run auction. Plans call for spending $6 billion to $8 billion on that rollout, mostly during 2022 to 2024.
The spectrum purchase will result in $6 billion in net debt. Acknowledging its struggles with debt, AT&T said it expects to use “all cash flows after total dividends to pay down debt and will continue to look for opportunities to monetize non-strategic assets.” The company entered 2021 with nearly $150 billion in debt, much of it the result of the $85 billion Time Warner acquisition.
“We’re being deliberate and strategic with how we allocate capital to invest in our market focus areas of 5G, fiber and HBO Max, while being committed to sustaining the dividend at current levels and utilizing cash after dividends to reduce debt,” CEO John Stankey said in a press release.
“Our number one priority in 2021 is growing our customer relationships. It’s about more than just adding to our customer base. It’s about expanding the growth opportunity in our three market focus areas and also increasing our share within each market,” Stankey said. “We’re focused on creating deeper relationships with our current customers to increase their daily engagement with our products and services, enabling us to gather more meaningful insights, drive loyalty, and stay ahead of their rapidly changing preferences. As demand for connectivity and content continues to grow, we are well positioned to deliver.”