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Can HBO Maintain Its Success in 2022?

By Adam Levy – Jan 11, 2022 at 6:15AM

Key Points

  • HBO ended 2021 with an impressive 73.8 million subscribers, beating expectations.
  • Investors are still awaiting some important details about those subscribers.
  • It's not yet clear whether the streaming service can maintain similar growth in 2022.

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AT&T exceeded its outlook for HBO subscribers in 2021.

AT&T (T 1.99%) shared some details about its HBO Max business ahead of an investor conference earlier this month. The video-on-demand service, combined with the legacy premium cable network, ended 2021 with 73.8 million global subscribers, above management's most optimistic guidance of 73 million. The numbers indicate HBO added about 4.4 million subscribers in the fourth quarter.

That's certainly good news. But the announcement is lacking some key details, including a breakdown between HBO and HBO Max as well as domestic vs. international subscribers. Moreover, investors will need to know if it can repeat its performance in 2022.

The HBO Max home screen as displayed on an iPad.

Image source: HBO.

Waiting on the details

While overall subscriber figures look strong, a lot will depend on the details. When AT&T reports its fourth-quarter results later this month, investors will want to see a turnaround in domestic subscribers. AT&T posted a net loss of nearly two million of them in the third quarter. One reason: its decision to end a distribution agreement with Amazon, which had over five million HBO subscribers through its Prime Videos Channels service. AT&T wants a more direct customer relationship, but investors will want to see progress in winning back those subscribers.

Internationally, the fourth quarter saw a rollout of HBO Max in the Nordic countries and Spain. That could add some subscribers but also impact revenue as HBO actually cut prices in some countries with the rollout.

The biggest missing piece is how many people subscribing to HBO through their pay-TV provider have activated and used the HBO Max app. AT&T stopped reporting that number at the start of 2021, so investors shouldn't put much hope in receiving an update when AT&T reports its quarterly results later this month. But an idea of how well HBO subscribers are converting to HBO Max users is important because it shows the true demand for HBO Max. Many pay-TV subscribers get HBO as part of a bundle and don't sign up for it directly or engage much with the service.

The direct-to-consumer efforts are currently the biggest growth driver for AT&T's WarnerMedia segment, which itself accounted for over 20% of the company's total revenue in the third quarter. AT&T is pouring billions of dollars into content and technology for this service, banking on subscriber growth. Moreover, HBO Max will be a centerpiece of the new Warner Bros. Discovery company following the merger between WarnerMedia and Discovery Communications (DISCA) (DISCK) which is expected to close later this year. HBO alone will account for nearly 13% of the merged media giants' total revenue and represent its best potential for growth.

If AT&T investors aren't confident in the future of HBO Max, they may want to unload their shares of the merged company when the deal closes. Discovery investors should also be paying close attention to the details in AT&T's earnings report to get an idea about the value of this all-important asset they about to acquire.

What's ahead for HBO Max

2022 could be a very challenging year for HBO Max. 2021 was boosted by the release of its Warner Bros. films on the same day that theaters did. Yet, theater attendance remained depressed as a result of the ongoing pandemic. HBO won't continue that film-release strategy in 2022, opting instead for a 45-day exclusive theatrical window.

As a result, not only will HBO Max lose a draw for new subscribers, it may also have trouble retaining those who signed up for monthly film releases. Subscriber retention will be a major focus for streaming services in 2022 as more competition causes churn rates to climb. Greater churn means HBO needs to add even more subscribers to offset its losses.

On a positive note, HBO could see a boost in subscribers as it expands to more markets in the first half of the year. Several small European markets are scheduled to launch; however, HBO is locked out of larger markets like the U.K., France, Germany, and Italy because of pre-existing distribution agreements. That will curb its subscriber growth relative to its biggest competitors and put it at a disadvantage in those markets when it finally can launch in 2025.

Another boost could come from its planned merger with Discovery Communications later this year. It could result in a bundled offer and spur signups with the help of good marketing.

AT&T said it expects HBO Max to reach 120 million to 150 million subscribers by 2025. While it's already halfway to the top end of that guidance, keep in mind it only added 13.2 million subscribers in 2021 despite aggressive tactics in an environment built for streaming video. Reaching its long-term outlook will require very good execution, especially considering the strong competition in streaming.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool recommends Discovery (C shares) and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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