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AT&T Starts to Milk the Time Warner Cash Cow

Now that AT&T finally has Time Warner firmly in its grasp, the US communications giant is working overtime to make the most of all its new content assets.

Speaking on the company's second-quarter earnings call late Tuesday, AT&T Inc. (NYSE: T) executives spelled out plans to leverage their new, rebranded WarnerMedia unit to drive subscription, advertising and transactional revenue. In particular, officials are counting on WarnerMedia to boost TV advertising and OTT video sub revenue as they mix and match the various new content properties with their wireline, satellite TV and mobile platforms covering the nation.

"We've now assembled the key elements of a modern media company," AT&T Chairman and CEO Randall Stephenson boasted on the earnings call. "But just owning great content is no longer sufficient. The modern media company must develop extensive direct-to-consumer relationships, and we think pure wholesale business models for media companies will be really tough to sustain over time. And when you look across our wireless, pay-TV and our broadband businesses, we now have more than 170 million direct-to-consumer relationships."

In a prime example of how AT&T plans to put its new WarnerMedia assets to use, the company has already started offering free HBO service to some of its wireless subscribers to boost customer acquisition and satisfaction rates and has launched WatchTV, a $15-a-month streaming package with 30 live TV channels and 15,000 VOD titles, to lure cord cutters back. Company officials indicated that they intend to do much more than that, including possibly bundling their HBO, Turner, sports and other properties in new streaming video bundles.

"We plan to further develop and nurture our direct-to-consumer distribution, including HBO Now," said new WarnerMedia CEO John Stankey. "That will include enhancing existing platforms, as well as delivering premium content to the more than 170 million direct-to-consumer relationships across AT&T's video, mobile and broadband platforms in the United States and Latin America. We also plan to add even greater value to these relationships by focusing, aggregating and incorporating more WarnerMedia intellectual property."

In another key move, AT&T plans to plow substantially more money into original TV content, particularly at HBO. With HBO now competing more intensely with Netflix, Amazon Video and other newer OTT rivals, Stankey said the telco would greenlight "very high, top-quality projects" at the premium content network to balance out its programming schedule and keep subscribers from churning in and out throughout the year.


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The major role that WarnerMedia will play in the new AT&T seemed quite evident in the company's second-quarter earnings report. Even though AT&T just closed on its $85 billion purchase of Time Warner on June 14, the unit still contributed heavily to its new parent company's financial health, generating $1.1 billion in revenue over the last 16 days of the quarter. For the entire quarter, WarnerMedia reported $7.8 billion in revenue, up 6.8% from $7.3 billion a year ago, as its Turner division revenue rose about 4% and its HBO division revenue climbed 13%.

To at least some extent, these gains offset continued turmoil in AT&T's TV distribution unit, as well as weaknesses in other areas, as the company reported lower earnings than expected overall. On the plus side, AT&T added 342,000 new customers to its over-the-top video service, DirecTV Now, boosting its customer base to than 1.8 million, while its U-verse IPTV service added about 24,000 customers. But on the minus side, the company lost another 286,000 subscribers for its much bigger and far more profitable DirecTV satellite service, cutting its overall video sub gains to 80,000. (See AT&T Expects Mobile 5G in 'Parts' of 12 Markets by Year's End and AT&T Eyes Higher DirecTV Now Margins.)

As a result, the company's Entertainment Group revenue fell 8% to $11.7 billion and its operating income plummeted 11.6% to $1.5 billion in the period.

On the broadband end of the business, AT&T reported netting 76,000 IP broadband subscribers but lost about 53,000 DSL customers, leading to an overall customer gain of 23,000 for the quarter. We'll have more on AT&T's broadband results in a story on our sister site, Broadband World News, later today.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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