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Spending on HBO Max Hurts Profits at AT&T’s WarnerMedia Unit

HBO Max logo
(Image credit: HBO Max)

AT&T, which is getting out of its expensive investments in the media business, reported that fourth-quarter profits fell at its WarnerMedia unit as it invested in HBO Max and advertising revenue dropped.

AT&T agreed to spin off WarnerMedia and sell it to Discovery. The company said it now expects that transaction to close in the second quarter. Last year AT&T spun off DirecTV and it also agreed to sell its Xandr ad unit to Microsoft.

The company reiterated that it finished the year with 73.8 million HBO and HBO Max subscribers. Earlier this month, the company disclosed the year end subscriber count for HBO and HBO Max, noting that it surpassed the high end of the 70 million to 73 million it had forecast for Wall Street.

HBO Max and HBO had 69.4 million subscribers at the end of the third quarter and 60.6 million a year ago.

Domestic subscribers were 46.8 million, from 45.2 million in the third quarter and up 5.3 million for the full year.

For WarnerMedia operating income was $1.6 billion, down 37.9% because of continued investments in HBO Max, the company said. 

Speaking on the company's earnings call with analysts, AT&T CFO Pascal Desroches said incremental spending on HBO Max was $500 million in the quarter. He said that AT&T expected content investment to peak in 2022, when HBO Max will have programming The Batman, Winning Time and Game of Thrones prequel House of the Dragon.

Total revenue was up 15.4% in the quarter to $9.9 billion, with direct-to-consumer subscription revenue up 11.5% to $1.9 billion in the quarter. Domestic HBO Max and HBO subscribers ARPU was $11.15.

Subscription revenue at WarnerMedia was up 5.4% to $3.8 billion. Ad revenue was down 12.9% to $1.6 billion. 

For the whole company, AT&T reported fourth-quarter net income was $5 billion, or 69 cents a share, compared to a loss of $13.9 billion, or $1.95 a share, a year ago.

Revenue was $41 billion, down 10.4%, reflecting the sale of businesses including DirecTV. Excluding the sales, AT&T said revenue was $40.6 billion compared to $39 billion a year ago.

AT&T said that it expected revenue to grow 3% in 2022, excluding WarnerMedia. It said it expected WarnerMedia revenue to be in the $37 billion to $39 billion range. AT&T expects earnings per share to be between $3.10 and $3.15 a share.

“A year and a half ago, we began simplifying our business to reposition AT&T for growth and we’re extremely pleased with how we’ve executed on that commitment,” said CEO John Stankey. “We ended 2021 the way we started it – by growing our customer relationships, running our operations more effectively and efficiently, and sharpening our focus. Our momentum is strong and we’re confident there is more opportunity to continue to grow our customer base and drive costs from the business.”■

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.