AT&T's revenue took a hit in the fourth quarter as the company gears up for the launch of WarnerMedia's new streaming service, HBO Max, due to arrive this May. The WarnerMedia division, which includes HBO as well as Turner and Warner Bros., saw revenue decline 3.3%, to $8.92 billion -- a drop that was in part attributed to WarnerMedia's decision to not license shows and movies to other services in advance of HBO Max's debut. The HBO Max investment, which includes these "foregone WarnerMedia content licensing revenues," totaled $1.2 billion.
WarnerMedia also saw a 9.5% decline in fourth-quarter operating income, to $2.4 billion, related to the HBO Max investment.
Among the shows which WarnerMedia decided to keep in-house ahead of HBO Max were "Friends" and "Big Bang Theory," which in the past have been sold externally.
These impacts, along with the loss of subscribers to AT&T's pay-TV business and other streaming services, also helped pull AT&T's overall revenue down in Q4. The company reported total fourth-quarter revenue of $46.82 billion, down 2.4%, and profit of $2.39 billion (or 33 cents per share), down from $4.86 billion (or 66 cents per share) in the same period a year ago.
The company saw significant losses in streaming and its pay-TV business. It lost 945,000 pay-TV subscribers across DirecTV and U-Verse, as well as 219,000 subscribers for its over-the-top streaming service, AT&T TV Now. AT&T's streaming service has lost subscribers throughout the year, noted The Hollywood Reporter, with a loss of 83,000 subscribers in Q1, 168,000 in Q2 and 195,000 in Q3. By the end of the year, AT&T TV Now ended up with 926,000 subscribers. That's less than half the estimated subscriber numbers for Hulu's live TV streaming service (not its VOD product).
On the pay-TV side, the company ended the year with 19.5 million customers, again following a stream of quarterly losses that peaked in Q3, when the businesses lost a combined 1.2 million subscribers.
On the earnings call, AT&T acknowledged that HBO Max would be "critical" to the company's success going forward. WarnerMedia CEO and AT&T COO John Stankey said the service would be the "highest-quality premium SVOD [service] in the market with a great experience, better curation, and higher percentage of culturally relevant offerings than competing products."
Stankey noted the company would have some "pretty aggressive promotions" for HBO Max at launch, including some wireless customers who will get it for free on some unlimited plans. It's doing deals with potential distribution partners, including both digital platforms and pay-TV companies. And HBO's more than 10 million customers on AT&T's existing distribution platforms will be offered access to HBO Max immediately at launch, to give it a fast start.
In the meantime, however, the HBO Max investment will continue to impact near-term revenues, AT&T warned.
"In the first part of the year, we expect pressure from heavy HBO Max investment, which you saw begin in the fourth quarter," said AT&T Chief Financial Officer John Stephens. But the company remains hopeful that HBO Max will do well.
"In the second half of the year, you will see our momentum build...HBO Max will have launched leading to strong subscriber growth. The run rate benefits of our cost reduction plans will be clearly visible. And 5G combined with HBO Max will drive more upgrades and stronger wireless revenue growth later in the year," Stephens added.
Of course, HBO Max's success is not guaranteed. AT&T may be bundling the service and offering it to existing HBO customers, but it still needs to grow its subscriber base with new sign-ups. And this year, there's a lot of new competition in streaming, thanks to the recent launches of Disney+ and Apple TV+, as well as the soon-to-arrive new services, including NBCU's Peacock and Quibi.