• by Karlene Lukovitz  @KLmarketdaily, December 9, 2020

The number of U.S. HBO subscribers who have authenticated HBO Max has risen by 4 million in the two months since AT&T reported them at about 8.6 million in Q3 — bringing the total to 12.6 million, AT&T CEO John Stankey reported Tuesday during the UBS Global TMT brokers conference.

HBO and Max combined were at 38 million U.S. subscribers in Q3, meaning the total should now exceed 40 million.

In comparison, at the end of Q2, AT&T reported 4.1 million U.S. Max activations and 36.3 million combined U.S. HBO/Max subscribers.

Some of the recent growth has presumably been driven by WarnerMedia’s finally clinching a deal with Amazon to get HBO Max on Amazon Fire devices, starting late last month.

AT&T — which has targeted a 50-million U.S. subscriber base for HBO Max — is pleased with the growth, and believes it will be accelerated substantially through its just-announced strategy of releasing 2021 Warner Bros. movies free to Max subscribers simultaneous with release in theaters, Stankey said.

Stankey acknowledged that the “hybrid” release strategy is controversial, but again stressed that AT&T judges it to be a “win/win” for all parties involved, given the reality that the pandemic’s limiting effects on consumer theater going are likely to linger well into 2021.

It is not financially viable for WarnerMedia to have films sitting on the shelf, earning no revenue, but the hybrid model does not shut theaters out — they will continue to have the ability to realize revenue on consumers who want a theater experience, Stankey said. “Giving theater owners a predictable release of content over the next several months that they can plan around and start to work their business around is a good thing for them,” he added.

Those points do not, of course, directly address theater owners’ concern that being able to see first-run movies at home for the $14.99 (or lower, in some cases) per month cost of an HBO Max subscription could serve to suppress consumers’ desire to return to theaters.

Some analysts have noted that the sheer number of factors involved — the revenue impacts on WarnerMedia from loss of theater tickets (MoffettNathanson estimates that impact at $1.2 billion in 2021); WarnerMedia’s savings on theatrical distribution costs; and the average revenue per user (ARPU), churn rate and profitability of HBO Max subscriptions, to name a few — makes it difficult to draw solid conclusions about the ultimate wisdom of the hybrid model.

But, as nscreenmedia noted in a hypothetical example, if “Wonder Woman 1984” were to attract 2 million Max subscribers and just half continued the service for a full year, the movie would earn about $300 million.

Stankey told UBS attendees that AT&T had solid reasons for choosing an HBO Max model of building its subscriber base and forming and maintaining connections with consumers through content it produces and owns itself over licensing out its content, as well as for opting for a relatively high subscription rate over potentially faster volume growth.

“Our goal of having over 50 million customers on the HBO Max platform domestically is important,” he said, per a Seeking Alpha transcript. “And [the hybrid release strategy] is one of those arrows in the quiver for us to be able to do that… We are bringing customers in at an ARPU that's at a meaningful level. We are not giving it away.”

Competitive services that offer lower subscription rates may build their platforms’ scale a bit more quickly, but will then “have to work really hard” to get their ARPUs up, he said. “And that's not an easy undertaking when you are balancing things like churn.”

While either model could be successful, “We are choosing to start with that big embedded base that we have on HBO and ensure it gets into a new platform of high engagement… In addition to getting that subscriber momentum up, getting the conversion momentum up,” Stankey said.

“Getting that conversion, where we have got that relationship with those customers and they are using that product that drives that increased level of engagement... that's good for our business” — both because it allows for gathering invaluable consumer data on an ongoing basis, and because “you can layer on things like an opportunity to broaden the content portfolio through things like possibly having certain ad-supported content sitting aside subscription-supported content,” he said.

Speaking of which, Stankey confirmed that AT&T is still on track to launch a (presumably HBO Max-branded) advertising-supported streaming platform next year, but added that there is “a little bit of misunderstanding” around at least one aspect, and hinted with not much ambiguity that the service may have some kind of hybrid advertising/subscriber fee model.

While noting that AT&T wants to increase its user base by making its offerings affordable to a broader audience, “One shouldn't conclude that the launch of AVOD means that all content sits in juxtaposition to advertising,” he said. “You can broaden the content that's available, some of which may be exposed to advertising, and you can put both together where you can buy down a particular retail price for the end-user that's more affordable to enjoy the experience. I think that's a good place to be from a customer choice perspective moving forward. And that's how we will bring that product forward.”

As for AT&T’s view of linear TV’s prospects going forward, Stankey asserted that “the direct contribution or the marginal contribution of the pay-TV bundle has seen its best days” from the perspective of end-user retail distributors like AT&T.

However, linear “definitely still makes sense” within a bundled structure, he said. “I believe that if you have any connectivity service and you can put something associated with it that allows a customer to engage with that connectivity service or impart better value in… buying the product or service, that's helpful."

“It's clear in our broadband business, for example, where we sell fiber and now a software-based AT&T TV service,” Stankey noted. “It's low-friction, high-engagement” — getting more services and content in the bundle drives down churn,” he added. Customers perceive the bundle as a better value and a convenience, “when it's billed right and supported right… That's all good.”