AT&T (NYSE:T) added 3.6 million HBO Max subscribers in the second quarter, ending the period with 67.5 million. It's already surpassed the lower end of the full-year subscriber guidance management provided just four months ago. As a result, management's raising its subscriber outlook to 70 million to 73 million by year-end.

In light of the success, WarnerMedia is making a couple big changes to its HBO Max strategy. It plans to continue debuting new feature films on the service, and it's going to focus more on the Latin American market before further expansion.

HBO Max homescreen on a TV.

Image source: WarnerMedia.

10 new film premieres on HBO Max

There's no doubt WarnerMedia's decision to release its 2021 Warner Bros. film slate day and date on HBO Max has driven sign-ups. Management called out the success on its first-quarter earnings call three months ago. "We're seeing in the customer data that many are opting to come in because of the theatrical slate opportunity," AT&T CEO John Stankey said.

Apparently that trend continued in the second quarter with its releases, including Godzilla vs. Kong. But management has already announced its plans to return to exclusive theatrical windows for its Warner Bros. releases in 2022 and beyond, which cast some doubt on the sustainability of HBO Max's subscriber growth.

On the second-quarter earnings call, however, WarnerMedia CEO Jason Kilar shared plans for Warner Bros. to create 10 films that will premiere on HBO Max in 2022. That number pales in comparison to its larger competitor, Netflix (NASDAQ:NFLX), which will release over 70 films in 2021. But if WarnerMedia keeps the quality high and the marketing team continues to execute, it could generate enough interest in its films to keep driving more sign-ups.

It'll be interesting to see if the 10 additional films are incremental to the HBO Max content budget or if they replace other potential content acquisitions. WarnerMedia originally planned to spend an extra $2 billion more on HBO Max content in 2022 versus HBO content pre-launch. Ten big blockbuster films could add quite a bit to that budget.

Pushing back the European launch

Back in March, WarnerMedia planned to launch HBO Max in Europe by the end of 2021, reaching 21 additional markets in the second half of the year. But after early success in Latin America, which just launched at the end of June, those plans might take a back seat.

"To lean into HBO Max fast start in Latin America, we may push back our launch in some European markets until early 2022," AT&T CFO Pascal Desroches said during the second-quarter earnings call. 

WarnerMedia is being very aggressive in Latin America. It launched the service with plans starting at $3 per month, and a standard plan priced below Netflix in the region. Management expects the majority of its subscriber growth to come from the region for the rest of the year.

HBO's European expansion is hindered by pre-existing contractual obligations with distributors in populous countries like the U.K., Germany, and Italy. Focusing on Latin America, where it's showing good traction, could allow it to invest in content more efficiently for subscriber growth. When HBO Max enters Europe, it'll be required to add a certain amount of European content to its library.

That said, the idea that WarnerMedia's focused on weighing efficiency and scale at all for HBO Max is surprising. Its competitors are focused primarily on scale first. But AT&T's budget is stretched thin, so it may not have room to invest more in Latin America and expand to Europe. WarnerMedia's merger with Discovery is expected to close in mid-2022, and HBO Max could be stuck with a limited budget until then.

HBO Max's subscriber growth over the last six months has been impressive, and management is taking what works for the streaming service and leaning into it. There are still some questions about the long-term potential for HBO Max to scale and reach profitability, but it's already ahead of pace for 2021.

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