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HBO Recedes Into the Shadow of O.G. AT&T

Tara Lachapelle
·4 min read

(Bloomberg Opinion) -- The logic behind AT&T Inc.’s acquisition of $170 billion of entertainment assets and their affiliated debt these last few years was difficult to comprehend from the start. The company had a perfectly good wireless business. How could entangling itself in an unfamiliar and highly competitive industry, and in a big way, be anything but a distraction? Perhaps AT&T is struggling with that rationale now, too.

The company opened its third-quarter earnings release Thursday with a curious line referring to its “market focus areas of wireless and fiber broadband,” in which it saw an unexpectedly large increase in subscribers. Although wireless has traditionally been AT&T’s core business, its splashy WarnerMedia purchase and new HBO Max video-streaming app have been the focus both inside and outside the company even as that strategy has taken an inauspicious turn. Former CEO Randall Stephenson and his recent successor, John Stankey, had shared the vision that controlling a wireless network and streaming-TV content would fuel mutual growth and customer loyalty, a synergistic relationship meant to give it an advantage over pure-play rivals like Verizon Communications Inc. and Walt Disney Co. Yet AT&T’s share price reached a decade low heading into earnings, and its shareholder losses this year far outpace those of Disney and Verizon.

The plan isn’t working too well. As streaming gets its time to shine, HBO is losing its luster, just as investors feared it would under AT&T. Meanwhile, Comcast Corp. is facing similar questions; an activist shareholder may be angling for a divestiture of the company’s bruised entertainment operations so that its focus can return to the more stable cable side. Quibi, a streaming upstart, is also throwing in the towel after making mistakes not all that different from the ones AT&T is making — prioritizing technology over programming, charging a relatively steep price and not doing enough promotion. Netflix Inc. makes it all look so easy.

AT&T reported Thursday that HBO and HBO Max together had 38 million U.S. subscribers as of September and 57 million globally. That may not sound terribly far behind Disney+, which had more than 57 million as of June. But HBO Max also had a jump start of about 30 million subscribers from the legacy HBO network. The latest figure suggests that it added merely 3.4 million in the U.S. this year — the year of a pandemic that’s made the television set the center of households once again and left consumers starving for anything to watch. For perspective, Netflix gained 28 million new subscribers this year — basically an entire HBO.

AT&T’s wireless operations continue to be the most attractive piece of the conglomerate, making Stephenson and Stankey’s dealmaking seem unnecessary at best and harmful at worst. But it’s still a bit early to judge. As Hollywood slowly resumes Covid-safe productions, and as Netflix nears a price hike that potentially puts it neck and neck with HBO Max’s $15-a-month fee, AT&T’s streaming business has a chance at redemption. Stankey said Thursday that about 130 productions are back in motion. It’s also gutting costs with thousands of job cuts planned within WarnerMedia.

Disney is restructuring its own TV and film businesses so that they all become workhorses for Disney+ as consumers continue to ditch cable and avoid movie theaters. While investors remain skeptical of AT&T’s and Comcast’s streaming moves, Disney’s stock has been rewarded for its efforts despite the company’s biggest profit centers being walloped by the pandemic more than most.

AT&T’s best business continues to be wireless, and all it took for AT&T’s stock to get a nice pop were some signs of improvement in that division and bit of downplaying of the entertainment side. Its shares jumped 5% after adding more wireless customers than expected and showing lower churn. The improvement includes its premium unlimited data plan, which is bundled with HBO Max, though executives didn’t stress that as the reason.

T-Mobile US Inc. has a spectrum advantage heading into 5G, and Verizon was Apple Inc.’s launch partner for its new 5G-enabled iPhone, so AT&T has work to do in proving HBO Max will give it the edge it needs. If it can’t do that, there are detour signs for the breakup path that Comcast is being steered toward. Clearly, AT&T’s DirecTV division needs to go — it never made sense for AT&T to own it. But just because HBO had the prestige and fanfare going in doesn’t mean it’s a good fit for AT&T, either.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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