It’s shaping up to be another rough quarter for traditional television giants, whose advertising businesses have been decimated by the postponement and cancellation of televised sporting events and whose theatrical releases have been put on hold due to the ongoing effects of the Covid-19 pandemic.
For AT&T, that translates into an estimated $510 million revenue impact, the company reported in its second quarter earnings this morning, with some of the biggest losses coming from the company’s advertising business.
At WarnerMedia, revenues were $6.8 billion, down 22.9% from a year prior, with many of those losses coming from Turner, which was battered by the postponement and cancellation of tentpole sporting events like the NBA and the NCAA Men’s Basketball Final Four and National Championship games. Revenues at Turner were $3 billion in the quarter, 12.4% lower than a year ago, and advertising revenues at Turner were down a whopping 37.1% in the quarter, from $1.27 billion a year ago to $796 million.
John Stankey, who this month succeeded Randall Stephenson as AT&T’s CEO, said the company was bracing for Covid-19’s effects to continue “well into next year.”
It’s the first quarter where the full effects of Covid-19 can be seen over all three months, and the picture isn’t pretty. In Q1, AT&T recorded an estimated $400 million impact of Covid-19 on revenues; Turner saw a 24.1% year-over-year quarterly decline in advertising revenue.
The considerable losses in the most recent quarter weren’t contained to Turner, and the collapse of advertising spend could be seen throughout AT&T’s business. At Xandr, AT&T’s advanced advertising unit, which was moved to WarnerMedia in April, advertising revenue was down 25.4% to $362 million. Total AT&T advertising revenue was $1.23 billion, down 33%, which the company said was primarily driven by the cancellation or suspension of live sports.
Early HBO Max subscriber numbers
Last quarter, the company emphasized the importance of its new streamer HBO Max as a point of optimism, but the newly debuted service did not exactly offer a slam dunk for the company to point to. HBO Max at the end of the quarter had attracted 3 million retail subscribers, Stankey told investors, and 4.1 million existing HBO subscribers had activated their HBO Max accounts.
As of June 30, AT&T counted 36.3 million U.S. subscribers to both HBO Max and HBO, up 1.7 million, or about 5%, from the 34.6 million HBO subscribers the company had at the end of 2019.
While the figures aren’t staggering, Stankey said HBO Max was “on track” to hit its previously projected targets: The company anticipated hitting 36 million domestic subscribers in 2020, expanding to 38 million in 2021 with the debut of an ad-supported HBO Max tier, and then reaching between 50 million and 90 million global subscribers by 2025.
But he acknowledged the company “had more work to do” to educate linear HBO subscribers about the Max offering. That acknowledgement comes after HBO Max’s May debut was met with some brand confusion and some inconsistency about where the service was available. The company announced earlier this month that it would sunset services HBO Go and HBO Now by the end of July and streamline its streaming offering.
Stankey warned investors that Max’s continued growth may run into additional snags, primarily because production of its original series remains up in the air.
“We are working on ways to resume production, and we hope to see that engine start to fire back up next month, but it’s going to take time to return to our February production levels,” he said.
The bleak quarterly report highlights the myriad ways Covid-19 is hamstringing even diversified businesses. Substantially reduced international travel has translated to fewer international wireless customers, AT&T reported, and the economic effects of the pandemic are accelerating cord-cutting, driving down subs to AT&T’s traditional television businesses. AT&T’s entertainment group, which accounts for subscribers to premium TV products like DirecTV and AT&T TV, along with subscribers to AT&T TV Now, video revenues were $7 billion, down 13.2% compared to a year ago.
Warner Bros., the theatrical arm, saw revenue decrease 3.9% decrease to $3.3 billion as theatrical releases continue to be hamstrung by Covid-19-related closures. Earlier this week, Warner Bros. said that anticipated Christopher Nolan thriller Tenet, which was slated to debut in theaters Aug. 12 and mark a return to normalcy for the movie industry, would not premiere in the U.S. until at least September.
Stankey assured investors that Tenet would not premiere on a subscription service like HBO Max, but he acknowledged that there may be “shifts” depending on the length of continued Covid-19 shutdowns, which for now has no end in sight.
“I don’t know when theaters are going to reopen, but there’s no question that the longer this goes on there’s going to be some content on the margins where we may be better served to deliver it in a different construct,” Stankey said.