When AT&T (NYSE: T) introduced HBO Max in October of 2019, it estimated it would have 50 million domestic subscribers and another 25 million to 40 million international subscribers by 2025. It now sees an opportunity for as many as 150 million global subscribers by that year.
But there are some key details investors shouldn't overlook in those numbers that make them less impressive. What's more, there's still reason to doubt AT&T can actually reach its long-term goal.
HBO Max isn't really adding that many subscribers
AT&T ended 2020 with 41.5 million total domestic HBO subscribers, well ahead of its initial outlook from 2019. At that time, it didn't expect to reach 41 million subscribers until 2022.
That said, it started 2020 with 34.6 million subscribers, so it added less than 7 million new viewers over the course of the year. That's not exactly a blazing start for the new service compared to Disney's (NYSE: DIS) Disney+ or Netflix (NASDAQ: NFLX). The latter managed to add 6.3 million subscribers across the U.S. and Canada last year, despite much higher market penetration than HBO.
AT&T has some big expansion plans for HBO Max in 2021. It's launching in 39 Latin American and Caribbean markets in June. It'll launch its ad-supported version of the service in the U.S. that same month. And it's adding 21 additional markets across the second half of the year. As a result, it now expects between 67 million and 70 million total HBO and HBO Max subscribers by the end of the year.
But that number looks a lot bigger than it actually is. AT&T says it ended 2020 with 61 million total HBO subscribers around the world. Indeed, the 10 million Latin American HBO subscribers and 9 million in Europe and the Nordics were barely mentioned in AT&T's 2019 presentation. But they were still very much a part of AT&T's subscriber outlook, and it seems those numbers haven't grown over the last 18 months.
Far fewer subscriber additions than the competition
All this is to say, AT&T's already building on a sizable base. Its new outlook calls for about 15 million net subscriber additions per year over the next five years. Given AT&T's investment in the service, it's somewhat disappointing compared to the competitors mentioned above.
Disney provided a forecast for 230 million to 260 million Disney+ subscribers by 2024. About one-third of those subscribers will come from the low-priced Disney+ Hotstar service in South Asia. Even when factoring out those subscribers, Disney expects to add around 24 million Disney+ subscribers on average in each of the next four years.
As for Netflix, which already counts nearly 210 million subscribers, it could grow to 286 million by 2026, according to Digital TV Research's Simon Murray. That's nearly 13 million net additions per year for the next six years.
In context of the competition, HBO Max's subscriber outlook really doesn't look that impressive.
What makes AT&T so confident anyway?
Management appears to be glossing over some important facts about the HBO subscriber base. While it's two years ahead of its original outlook on the domestic front, there's still some questions about how appealing HBO Max really is, beyond the core HBO subscriber base.
Management has tried to quell those concerns. WarnerMedia CEO Jason Kilar pointed out the broad appeal of HBO Max versus HBO: more female viewers and younger subscribers, and higher engagement compared to legacy HBO.
But as of the end of 2020, just one-third of legacy HBO subscribers had activated their HBO Max accounts.
That number, along with retail HBO Max sign ups, was likely bolstered by WarnerMedia's day and date release of its films in theaters and on HBO Max, starting in December with Wonder Woman 1984.
The film studio has committed to the release strategy through 2021, but not beyond. As a result, retail signups and activation rates may drop considerably in 2022.
AT&T's planning to invest more in content for HBO Max, but it didn't provide significant details about its content strategy going forward. Kilar briefly mentioned plans for two dozen DC Comics Universe releases. Unless it's planning to premier big blockbuster films every month on HBO Max in 2022 and beyond, though, it'll hold less appeal among consumers than it does today.
By comparison, Disney laid out all the releases coming to Disney+ and its other streaming services this year at its investor day in December. In January, Netflix told investors it has 500 titles in post production and plans to release one film each week this year.
It's not clear that HBO Max has the broad appeal to attract even 15 million global net additions each year to reach its subscriber target. After all, it can't even get the majority of its existing subscribers to move from HBO to HBO Max for free. Investors expecting HBO Max to drive growth at AT&T like streaming has for other media companies may be disappointed.
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