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AT&T Sounds Bullish on HBO Max's Future as Netflix Growth Slows

HBO Max reported fourth-quarter revenue grew 11%. WarnerMedia added more than 13 million subscribers in 2021.
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AT&T's  (T) - Get AT&T Inc. Report outlook on HBO and HBO Max seems more positive coming out of a strong fourth quarter while rivals are running into growth and profitability issues. 

The phone company turned media group's $85.4 billion investment in WarnerMedia in 2016 is paying dividends with direct-to-consumer subscription revenue growing 11% year over year in the fourth quarter.

AT&T says it surpassed the high end of its guidance for HBO Max and HBO subscribers, adding 13.1 million of them in 2021. The services now have a base of 73.8 million global subscribers.

"WarnerMedia is well positioned as a dynamic global business," AT&T Chief Executive John Stankey said on the company's earnings call this week.

That increase in global subs comes as the company invested $500 million into the service in the fourth quarter. 

The company also said last year that it would merge WarnerMedia with Discovery  (DISCA) - Get Discovery, Inc. Class A Report in a $43 billion deal.

Looking Under the Hood

On the surface, Netflix's (NFLX) - Get Netflix, Inc. Report subscriber base of 222 million globally is dominant, but Stankey says that if you look under the hood, WarnerMedia's direct-to-consumer content is holding its own. 

While HBO's average revenue per user of $11.15 globally is down sequentially from $11.82 and trails Netflix's $14.78, it is more than double Disney+'s ARPU of $4.12. 

This is thanks to HBO Max's higher price point. 

Stankey points out that HBO Max's $14.99 base subscription price has long been criticized as streamers like Disney+ entered the market with rock-bottom prices. But now, Netflix is raising prices for its base package to $15.99.

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"And lo and behold, we are no longer the high-priced offer in the market. And the nice part about that is we think it will allow us to have domestic growth as we move forward," Stankey said.

"We don't have the struggles that maybe some other products that came in at very low prices are going to have to kind of try to move up that ARPU continuum."

HBO's Breakup With Amazon

The company's previous quarter was its first after pulling HBO Max off Amazon  (AMZN) - Get Amazon.com, Inc. Report Prime Video. In the short term, the move cost the service 5 million subscribers, but the long-term strategy is still intact, according to Stankey. 

“There are a lot of entities out there that are growing, quote-unquote, ‘direct-to-consumer’ customers that are behind the screen of the Amazon marketplace that really are Amazon’s DTC customers. They are not the media company’s DTC customers," Stankey said.

The benefit of his company's approach is that WarnerMedia now has direct access to its customers without having to give up valuable data on them to Amazon. 

Netflix's Runway May Be Shortening

Netflix is still by far the market leader when it comes to streaming services, doubling Disney+ in terms of paying subscribers and nearly double the size of the U.S. cable market at its peak. 

But the company's stock has weakened since its earnings release as subcriber growth slows amid increased competition from the likes of HBO. 

Reed Hastings, Netflix’s co-CEO, noted that the Los Gatos, Calif., company has been facing more competition than ever, while also noting that it’s had rivals such as Hulu and Amazon (AMZN) - Get Amazon.com, Inc. Report for 14 years.

Meanwhile, AT&T's outlook on HBO Max seems bright, despite the division reporting a 38% decline in operating profit due to higher costs. 

"Coming off an outstanding year with HBO Max, we plan to hand off the business with a strong exit velocity, and we look to further our international momentum and deliver more world-class content for viewers," Stankey said.