John Stanley, AT&T President and WarnerMedia CEO, was interviewed recently on CNBC regarding the unveiling of HBOMax. From his perspective, HBOMax will be an incredible value for customers. The service will be introduced in May 2020 and will be extremely important to the future of WarnerMedia and AT&T. Essentially, “we are all in”, which means that all of WarnerMedia and AT&T have been instrumental in the introduction of the HBOMax product. The service will support an ad model. Produce general entertainment content, need a way to get content out to consumers.
But, why would people pay $14.99 when Disney, Apple and Netflix peers are much less in price. Mr. Stankey commented that they, Disney and the others, are not the same product. He believes that HBOMax reaches a broader demographic and has a much broader and unique content offering. And, bundled with other AT&T’s products and services such as distribution, pay tv and other products. Offering HBOMax video on AT&T’s distribution systems and wireless will definitely lower churn.
With the size of HBOMax’s content offering and the reality of the strength of the AT&T distribution network, the combination will be very strong. And, WarnerMedia can say it succeeded when you get people to come in and pay for the product.
By 2025, it is projected that HBOMax will be profitable and generate $1B EDITDA. The amount is insignificant when AT&T generates $30B in free cash flow (FCF). Most analysts were positive about the product. How do you get a younger demographic, which have grown up not paying for this stuff and and get those 16M incremental subscribers and the 60 million to 70 million incremental subscribers around the world. Put something of value in front of them, they will pay for it as their income and wealth grow.
Analysts and smart investors, such as Elliott Management, do not have great confidence in AT&T management team. Misstep with regards with Direct TV paying $67B for the product. The erosion in the pay TV bundle has been faster the projected. Always going to be a transition from satellite subscribers to software subscribers. Not further along in that transition.
Mr. Stankey has conveyed that WarnerMedia is in a much better place today then the day the merger with Time Warner closed. Furthermore, he conveyed that analysts and company stakeholders should have great confidence in the AT&T management team. He cited the Time Warner team integration into AT&T has been successful. Anytime you buy a company at a premium, you cannot run it the same as before and must make changes and hard decisions to get value out of it. We restructured the division and broke down the silos and got people to work together. This is probably the first occasion, he said, that the HBO brand has adorned a billboard on the Warner Brothers Lot.
Why the peak in satellite loses because they are offering a more desirable product that should slow the rate of decline. Erosion in the pay tv bundles. They have pulled a lot of cash out of Direct. They wanted to transition the satellite subscriber base to a software subscriber business. More on demand general entertainment content to stay on the platform and not have to go someplace else.
Erosion in the satellite business. Subscriber base from satellite subscribers to software subscribers. Feel it is the peak in Direct TV subscribers loses. Direct TV Now, which became AT&T Now, the over the top product. Overtime, live sports and entertainment will become part of the product. Such a state of change in the market. Margin probably more compressed on a per subscriber basis.