AT&T (NYSE:T) made a big bet with HBO Max. The company spent $2 billion getting the expanded HBO service off the ground in 2020, and it didn't have much to show for it in the first six months of its launch. But the streaming service is finally starting to gain some traction after striking deals with Amazon (NASDAQ:AMZN) and Roku (NASDAQ:ROKU) and releasing Wonder Woman 1984 the same day it premiered in theaters.

AT&T closed the fourth quarter with 17.2 million active HBO Max accounts, up from 8.6 million three months earlier. More notable are the 3.3 million net subscriber additions for those signing up directly for HBO Max. While it's showing good progress, there's still a lot of work left for AT&T and HBO.

The HBO Max home screen on iPad.

Image source: WarnerMedia.

A look at the state of HBO subscribers

AT&T breaks out its HBO subscribers into several categories. HBO Max wholesale subscribers are customers that pay for HBO through a distributor like their pay-TV service or Amazon Prime Channels, and they're eligible to activate HBO Max. HBO Max retail subscribers sign up directly for HBO Max through the website, app, or channel on connected-TV devices. HBO commercial customers are accounts that aren't eligible for HBO Max -- mostly hotels or restaurants. And HBO subscribers are households with an HBO subscription that aren't eligible for HBO Max.

AT&T also breaks out HBO Max activations, which are the number of HBO Max retail subscribers plus the number of HBO Max wholesale subscribers that have used their login credentials to sign into the HBO Max website or app on any platform.

Here's how things changed for the company in the fourth quarter.

Category
(Subscribers in Thousands)

Q3 2020 

Q4 2020

HBO Max wholesale

25,106

30,785

HBO Max retail

3,625

6,880

HBO commercial

3,688

3,666

HBO

5,614

197

HBO Max activations

8,612

17,170

Data source: AT&T earnings results.

A couple things stand out. First, AT&T shifted about 5.5 million subscribers from HBO to HBO Max wholesale subscribers. That's a result of its deals with Amazon and Roku. Amazon previously said about 5 million HBO subscribers pay for the service through its Prime Channels. Roku has a similar offer through The Roku Channel.

Next is the jump in retail subscribers. About 3.3 million households signed up for an HBO Max account. That can also be attributed to the deals with Amazon and Roku. People want to watch HBO on their TVs, not their computers and tablets. AT&T's decision to release Wonder Woman 1984 and its entire 2021 WarnerMedia film release slate on HBO Max no doubt contributed to growth in direct sign-ups as well.

By comparison, Netflix added just 860,000 subscribers in the U.S. and Canada during the fourth quarter. But it does have over 73 million subscribers already -- nearly twice as many as HBO had at the end of Q3. Disney said it had added about 2.2 million Hulu subscribers through the first two months of its first quarter. While Hulu has a subscriber base similar in size to HBO, it's less expensive and it includes Live TV subscribers in that number.

Overall, the results show comparable progress for HBO Max in relation to other media companies' streaming services.

There's still room for improvement

There are a few important details worth diving into from AT&T's results that show it still has work to do to improve conversions.

It's still having trouble convincing subscribers to activate their HBO Max subscription. Just 10.3 million of the 30.8 million wholesale subscribers have activated HBO Max. Even the offer to watch a film previously projected to be one of the biggest blockbusters of 2020 wasn't enough to convince 20 million households to download an app and remember their passwords.

And progress throughout 2021 will get harder. CEO John Stankey noted on the earnings call that Wonder Woman 1984 was a tentpole release. And while HBO Max will have more tentpole releases throughout 2021, not every film is going to generate the spike in sign-ups that Wonder Woman 1984 did.

What's more, the company is now trying to convert an audience that's been unmotivated through the first seven months of the service's life. It's also dealing with the potential for subscribers to churn in and out of HBO Max when it releases a film they're interested in. AT&T tried to stem this behavior by offering a discount for subscribers willing to commit to six months of the service, but management didn't provide any color on its success with that effort.

While HBO Max's fourth-quarter results show promise, there's still a long way to go before it should start celebrating its success.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.