Amazon (NASDAQ:AMZN) was a key strategic partner for HBO in the early days of its original direct-to-consumer streaming service, HBO Now. But when AT&T (NYSE:T) launched HBO Max, it had issues with Amazon controlling so much user data, and fought to take its subscribers back. Last quarter, consumers who subscribed to HBO through Amazon found their subscriptions ended automatically, and AT&T worked to get them to sign up for HBO Max directly.
Here's how HBO and AT&T have fared since then.
Over 5 million subscribers in limbo
Amazon accounted for a significant portion of HBO's direct-to-consumer subscribers. Before the HBO Max launch, more than half of its streaming subscribers came to it through Amazon. Cutting off that relationship was a big risk for HBO, but management argued owning the subscriber relationship and the data that comes with it was worth the risk.
In the third quarter, AT&T reported a 1.85 million decline in domestic HBO subscribers. Specifically, it saw a 2.43 million decline in wholesale subscribers, offset by a 570,000 gain in retail subscribers. Wholesale subscribers access HBO Max through their cable provider or another party, while retail subscribers sign up directly with HBO through its website or app. Amazon Channel subscribers would fall into the wholesale category.
When HBO Max launched, Amazon said it had nearly 5 million HBO subscribers on Amazon Channels. But those customers weren't given access to HBO Max until well after the launch, when HBO and Amazon negotiated an agreement with plans to sunset those subscriptions in September 2021. That number was reflected in about 5.4 million HBO subscribers migrated to HBO Max wholesale subscribers in the fourth quarter last year.
HBO ran a promotion to get new retail signups as it sunset Amazon Channel subscribers, but the impact may have been minimal considering it added just 570,000 retail subscribers for the full quarter. It appears HBO has a lot of work to do to win those Amazon subscribers back.
Will they come back in the fourth quarter?
Management is anticipating a strong fourth quarter for HBO Max. It expects global HBO Max subscribers to come in at the high end of its previous guidance for 69 million to 73 million by the end of the year. For reference, it already surpassed the low end of that guidance.
Fueling growth in the fourth quarter is the expansion to select European markets and continued progress in Latin America. It added 3.7 million international subscribers in the fourth quarter. The addition of six European countries launching at a competitive price point should help support continued growth.
In the U.S., HBO Max will showcase the return of several popular and Emmy-winning series in the fourth quarter, and it'll release some highly anticipated films. The day-and-date film release strategy has bolstered sign-ups and subscriber retention, and it should continue to do so. Management pointed to the weaker content slate in the third quarter as a reason for modest net subscriber additions on the retail side.
That said, HBO will have fierce competition for fourth-quarter sign-ups because there will be lots of new content coming out across the streaming industry. The timing for dropping Amazon subscribers may turn out to be suboptimal. While subscriber numbers held up well in the third quarter with strong wholesale sign-ups, it's not clear it'll recover most of the lost Amazon subscribers without a cable subscription. We'll see in three months when AT&T reports its full-year results.