AT&T Sets Sights on Streaming, Connectivity After Bleak Quarter Due to Covid-19

The ongoing Covid-19 pandemic has translated to a dramatic hit to almost every segment of media giant AT&T in its first quarter, making the May 27 debut of HBO Max more important to the company than ever. [article_summary section="1"]A quarterly earnings report from AT&T makes it the first traditional media and telecom giant to account for the novel coronavirus' impact on its bottom line, and provides a blueprint for how legacy media companies may look to weather the continuing economic storm: a plan that leans heavily on connectivity, streaming entertainment and digital advertising services. In its earnings report and investor call this morning, AT&T executives underscored that HBO Max, along with expanded 5G capabilities and connectivity services, are the anticipated bright spots for a company facing revenue drops almost across the board. "The crisis has shown the value of premium streaming entertainment, and we anticipate a strong demand for HBO Max when it launches next month," AT&T chief financial officer John Stephens said. Despite the optimism about HBO Max, the quarterly report from AT&T was bleak. While Covid-19 only began significantly affecting business in the second half of March, it had a $400 million revenue impact on the company. Stephens warned that the second quarter would be worse; the company withdrew previous financial guidance due to the ongoing uncertainty swirling around the crisis and its wide-ranging economic effects. The WarnerMedia segment, which encompasses Turner broadcast properties, HBO and the Warner Bros. theatrical business, saw major hits to its advertising and theatrical revenues. The cancellation of March Madness and the NCAA Basketball Tournament, which originally would have served as major advertising vehicles for HBO Max's marketing efforts, resulted in a 24.1% year-over-year quarterly decline in advertising revenue on the Turner side—from $1.26 billion in 2019 to $957 million in 2020—an unsurprising but considerable drop. Theatrical revenues were also down 26.6% percent in the quarter. AT&T president and chief operating officer John Stankey said that television's scatter market "is not as robust as it's been," signaling another bit of bad news for TV advertising, which has already seen the traditional upfronts market upended amid advertiser uncertainty. [article_summary section="2"]The crisis is prompting a "rethinking" of the company's theatrical model, Stankey said. The first example came on Tuesday, when Warner Bros. said the theatrical release of the animated Scooby-Doo movie Scoob!, which had been scheduled for a May 15 release, would skip a traditional theatrical release and move to transactional video-on-demand platforms. The move is similar to other media companies that have opted to leverage TVOD platforms to bring in some in-home revenue for certain smaller films. HBO subscribers were up a tick, 0.3% in the quarter, and Turner subscription revenues were up 4.3%. Xandr, the advertising services segment of AT&T, was another bright spot for the company, with operating revenues up 14.8% in the first quarter. Overall, advertising revenues across AT&T were down 12.9%. On the pay television side, the company saw a 47.7% decline in subscribers to AT&T TV Now, its no-contract live and on-demand television service, and premium television also declined 16.9%, from 22.3 million subscribers to 18.6 million in a year's time. Overall, video net additions were down 65.1% in the quarter, and video entertainment operating revenues were down 8.4%. Service and equipment sales were also down, which executives attributed to retail closures and discomfort among customers to switch connectivity providers, which may require in-home installation. The company also saw a hit to revenues from wireless services, partially due to a near-standstill in international roaming revenues from traveling customers. Stankey resisted an investor suggestion that the current moment was accelerating a pivot to streaming, and said that AT&T's television business was seeing renewed importance amid widespread stay-at-home and shelter-in-place orders. Going forward, though, there may be pressure on that portion of the business as a stressed economic environment continued to play out and prompt customers to evaluate their household spend, he said. It's likely that quarterly earnings from other major media companies will be similar. Upcoming reports from Comcast, which owns NBCUniversal, and Disney, which owns ABC and ESPN, will include another blemish: Those companies, unlike AT&T, own and operate amusement parks, whose revenues have ground to a standstill during the crisis.