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AT&T's HBO Max Numbers Don't Add Up

By James Brumley - Mar 16, 2021 at 7:30AM

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And even if they did, the numbers still don't address investors' bigger questions.

The rhetoric is riveting. AT&T (T 0.94%) just said it's upping expectations for the number of HBO streaming customers it will be serving by 2025, from 2019's projection of between 75 million and 90 million to its new outlook of a whopping 150 million. For perspective, Walt Disney (DIS -0.70%) just saw its Disney+ customer base eclipse the 100 million mark, while Netflix (NFLX 1.56%) boasts 204 million paying members worldwide. Not bad.

AT&T's WarnerMedia CEO Jason Kilar went on to explain, "Based on publicly available data and analysts' estimates, we believe that we are already the No. 2 revenue-generating stand-alone subscription video-on-demand service in the U.S." Presumably, Netflix's Canadian and United States customers paying an average of $13.51 a month qualify it as the domestic market leader.

Kilar's wording could be easily misinterpreted though, painting a far more bullish picture for AT&T's streaming opportunity than merited.

Woman using a calculator at a desk.

Image source: Getty Images.

Confusing wording on what constitutes "No. 2"

The impasse is a lack of clarity on what Kilar meant by a "revenue-generating stand-alone subscription video-on-demand service." His portion of AT&T's virtual analyst day event held Friday was largely about HBO Max, so it would be easy to assume his accolade was attributable to HBO Max itself. But that math doesn't add up.

We don't know exactly how many people are paying HBO Max customers. We do know, however, that as of the end of last year there were a total of 41.5 million customers between the regular HBO service and the newer streaming HBO Max platform.

The catch: Most consumers enjoying HBO through their cable provider (or even outside of a conventional cable service) are eligible for free access to HBO Max, as are customers of several AT&T Unlimited wireless plans.

We also know that as of the end of 2020, only 17.1 million people had actually activated their HBO Max option despite it being a no-cost bonus for many. Sure, a slew more could have been brought into the fold in the meantime. Given its relatively slow start in the midst of a pandemic that's starved consumers for entertainment though, it's unlikely growth in the number of paying HBO Max customers suddenly accelerated.

HBO Max is not actually No. 2 either

But coupling HBO with HBO Max qualifies it as a "stand-alone subscription video-on-demand service?"

That's a stretch. TV-delivered HBO isn't "on-demand" -- at least not in the sense we understand Disney+ or Netflix to be. And, if HBO Max customers are largely created by an existing relationship with AT&T Wireless or HBO, that's not "stand-alone" either (again, at least not in the way Disney+ or Netflix are).

Even in playing out the best-case scenario though, 41.5 million customers paying the full retail price for any relationship with the HBO brand only gets AT&T to an annualized revenue run rate of $7.5 billion. To this end, AT&T said in Friday's presentation that all of the HBO brand's revenue-bearing platforms combined only drove $6.8 billion worth of business last year.

It's a figure that not only fails to rival Netflix's domestic top line but Amazon's (AMZN 0.25%) likely Prime business in the United States too. Consumer Intelligence Research Partners estimates 126 million U.S. households are paying at least $9 per month -- the price of the video-only version of Prime. That's worth a minimum of $13.6 billion annually.

Also omitted from AT&T's presentation numbers is how much of HBO's current business is actually generated by U.S. customers. Most probably is, but certainly, some of it isn't. Kilar didn't say.

Then there's the even bigger question: So what? HBO may be the second-biggest streaming brand in the United States, but is it the second-most profitable? Can it remain so? Remember, AT&T is now managing two different video platforms. Some content overlaps. Other content doesn't. Both platforms require ongoing support and maintenance.

The cheering only highlights what AT&T isn't saying

None of this is meant to pan AT&T or Kilar. HBO Max is a success, and Kilar helped it become one.

If a detail meant to excite investors is divulged though, it's subject to scrutiny. This one just doesn't hold up very well, prompting questions of why it was offered in the first place; it particularly misses the relevancy mark. It would be far more helpful to know many HBO Max subscribers -- regardless of their location -- are actually paying for the service and how much they're paying per month. Netflix and Walt Disney already disclose such metrics.

There's one bright spot to the WarnerMedia portion of Friday's analyst day event, however. That is, the company believes HBO in its entirety will more than double 2020's top line of $6.8 billion by 2025 when it's expected to break even on $15 billion in revenue. Of course, that also implies the division is losing money now, and likely will for the next four years.

All of a sudden, HBO's suggested questionable share of the United States' streaming market doesn't really matter much anyway.

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