HBO announces Launch of Ad-Supported Tier

HBO and HBO Max Add 2.8 Million New Domestic Subscribers in Q2 2021

Bringing total U.S. subscribers to 47 million

In its second quarter 2021 financials, AT&T’s WarnerMedia reported strong revenue and subscriber growth, driven by the success of direct-to-consumer streaming subscription service HBO Max. Among the highlights are the addition of 2.8 million new domestic subscribers to HBO and HBO Max during the quarter. This brings total U.S. subscribers to 47.0 million in the U.S., an increase of 10.7 million in the last year, and global subscribers to 67.5 million, an increase of 12.0 million in the last year.

Total revenue from WarnerMedia for the second quarter was $8.8 billion, an increase of 30.7%, and direct-to-consumer subscription revenue increased 39% year-over-year. WarnerMedia is now expecting to add 70 million to 73 million HBO and HBO Max global subscribers by the end of the year, an increase over previous guidance of 67 million to 70 million global subscribers.

 “HBO Max had another strong quarter and is ahead of plan to be a leading direct-to-consumer streaming platform, with both subscriber- and ad-supported choices,” said John Stankey, AT&T CEO, in a July 22, 2021 news release.

“We transformed HBO from a $6 billion business that was not growing to an $8 billion run-rate business that grew nearly 40% this quarter,” Stankey said on the July 22 earnings call.

Quarterly highlights

Other second quarter highlights for WarnerMedia include the following:

  • Warner Media launched an ad-supported tier for HBO Max. Price-sensitive streaming viewers can now watch HBO Max for $9.99, a third less than the $14.99 a month ad-free version.
  • Total subscription revenue was $4.0 billion, a 21.3% increase.
  • Advertising revenue was $1.7 billion, a 48.5% increase. The company attributes the increase to the return of the NBA and its news programming.
  • Content and other revenues were $3.1 billion, an increase of 34.9%.
  • Operating expenses for the quarter were $1.7 billion, an increase of 47.3%, due to higher film and programming costs, sports costs, and marketing.
  • Operating income was $1.7 billion, a decrease of 11.3%, and operating income margin was 19.2%, compared to 28.4% in the second quarter of 2020.
  • Between the first and second quarters of 2021, domestic HBO and HBO Max subscribers grew from 44.2 million to 47.0 million.
  • Domestic subscriber ARPU (average revenue per user) was $11.90 per month, an increase from $11.72 per month in the first quarter.
  • HBO and HBO Max received 130 nominations last week.
A selection of HBO Max’s current selections. Image courtesy of HBO Max.

“HBO Max continues to exceed our expectations. Having surpassed the lower end of our global subscriber target six months ahead of plan, we are now raising our expectations to 70 million to 73 million global subscribers by the end of the year,” said Pascal Desroches, chief financial officer, on the earnings call. “Customers love HBO Max, and subscriber growth is exceeding expectations.”

During the second quarter, AT&T announced its plans to spin off WarnerMedia and merge with Discovery, Inc. in a deal worth $43 billion. This will combine WarnerMedia’s direct-to-consumer streaming service, HBO Max, with Discovery’s new streaming service, Discovery+, which launched in January. At the end of April, Discovery reported 15 million total paying direct-to-consumer streaming subscribers, including subscribers to its new Discovery+ subscription service. The combined company is estimated to earn revenue of $52 billion in 2023.

Insider Take

Considering HBO Max just launched at the end of May 2020, these are amazing results. Most streaming services grew their paid subscriber base during the pandemic, and HBO Max has continued that growth, exceeding expectations. By adding an ad-supported tier in June, the popularity of HBO Max is sure to grow, along with subscriber revenue. When WarnerMedia and Discovery Inc. merge, HBO Max will be a high value addition to the entertainment empire Discovery has built.

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