AT&T reported lower earnings as it lost TV subscribers and costs at its WarnerMedia unit rose as it invested in its HBO Max streaming product.
Net income fell 24% to $2.8 billion, or 39 cents a share, from $3.7 billion, or 50 cents a share, a year ago.
Revenues fell 5% to $42.3 billion. The company estimated that COVID-19 and foreign currency shifts cost it $2.8 billion in revenue.
AT&T said the combination of traditional HBO and the new HBO Max service grew their combined domestic subscriber base to 38 million, topping the company’s year-end target of 36 million. Worldwide, the HBO brands have 57 million subscribers.
Last quarter, AT&T said it had 36.3 million U.S. subscribers to HBO Max and HBO as of June 30. It said and that HBO Max had about 3 million retail subscribers and 4.1 million subscribers had activated Max accounts.
The company added that HBO Max activations doubled from second-quarter levels and that the ad-supported version of HBO Max was “on track” to launch in 2021.
The company said it lost 590,000 TV subscribers, despite gains with its AT&T TV product.
“We delivered a solid quarter with good subscriber momentum in our market focus areas of connectivity and software-based entertainment,” said CEO John Stankey,
“Wireless postpaid growth was the strongest that it’s been in years with one million net additions, including 645,000 phones. We added more than 350,000 fiber broadband customers and are on track to grow our fiber base by more than 25% this year. And we continue to grow and scale HBO Max, with total domestic HBO and HBO Max subscribers topping 38 million — well ahead of our expectations for the full year,” Stankey said. “Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.”
Operating income at AT&T WarnerMedia unit fell 38.4% to $1.759 billion, with costs up at Turner and HBO and revenues dropping 10% to $7.514 billion. The company said it lost $1.6 billion in revenue in the quarter because of COVID-19.
Turner operating income fell 31.1% to $1.019 billion as revenues rose 5.6% to $3.176 billion. Subscription revenue was down 4.5% to $1.84 billion and advertising revenue rose 18% to $1.077 billion.
HBO operating income dove 91.6% to $60 million, driven by a $600 million investment in HBO Max as revenues fell 2.1% to $1.781 billion. Subscription revenues rose 5.9% while content revenue were down 45.1%
Warner Bros. operating income plunged 32.8% to $395 million as revenue plummeted 27.7% to $2.411 billion. Revenue from television product was down 34.4%
Advertising revenue at Xandr, now part of WarnerMedia, fell $1.4% to $497 million. Advertising for AT&T’s Entertainment group was down 3.1% to $408 million.
AT&T Entertainment group, which provides video, broadband and voice services, reported that operating income fell 28.1% to $779 million as revenues dropped 10.2% to $10.053 billion.
Revenue from video--including DirecTV and AT&T TV Now --was down 12.2% to $6.964 billion. Video connection fell 17.5 to 17.783 million.
AT&T’s wireless unit’s operating income fell 0.9% to $5.691 billion as revenue rose 1.1% to $17.894 billion, reflecting a 31.8% margin. Total mobility subscribers rose 8.9% to 176 million.
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