AT&T Pinched by Cord-Cutting and Closed Theaters --Update
By Drew FitzGerald
AT&T Inc.'s big media bets dragged down results in the
latest quarter as closed movie theaters and pay-television customer
losses offset the growth at its core wireless and broadband
The telecom and media giant said Thursday that 8.6 million
customers had activated HBO Max, its Netflix-like streaming video
service, by the end of September, up from 4.1 million shortly after
its May launch. The total still trails rivals Disney+ and Hulu.
The wireless business, which remains the heart of AT&T's
profit engine, added 645,000 postpaid phone subscribers. That is
more than double the phone-connections gain reported by Verizon
Communications Inc. during the same period.
AT&T's pay-TV division continued trending in the other
direction, shedding 627,000 video customers. That result was still
an improvement over the roughly one million video customers lost in
each of the previous two quarters. The unit, which includes
DirecTV, has suffered the lion's share of cord-cutting in recent
years, prompting the company to explore a sale of the satellite
Overall, AT&T's quarterly revenue dropped 5% to $42.3
billion. The company attributed a roughly $2.5 billion revenue loss
to Covid-19 as theater closures shrank box-office receipts from
Warner Bros. movies and wireless roaming fees dried up.
AT&T and media rivals Walt Disney Co. and Comcast Corp. have
started cutting thousands of jobs to offset business lost to the
coronavirus pandemic. The virus has sapped the advertising market
and delayed the release of major movies.
That market pressure prompted WarnerMedia to start a broad
corporate shake-up to trim overhead costs and turn the
movie-and-film producer into a more unified company. Executives
seek to cut the division's expenses by as much as 20%, according to
people familiar with the plans.
AT&T's overall quarterly profit fell to about $2.8 billion,
or 39 cents a share, compared with about $3.7 billion, or 50 cents,
a year earlier. The result included about 21 cents of per-share
costs tied to the pandemic.
The result prompted AT&T to tweak its full-year cash flow
projections. The company said it expects free cash flow to reach
$26 billion or higher with its dividend payout ratio in the high
50% range. That rate would support the nearly $15 billion in annual
dividend payments projected earlier this year, before the
coronavirus pandemic forced the company to withdraw its earlier
The latest quarter included 151,000 paying wireless subscribers
retained under Keep Americans Connected, a program launched as a
federal coronavirus forbearance initiative. The company also
reported a net gain of 158,000 broadband subscribers, a figure that
included 104,000 accounts on a Keep Americans Connected plan.
AT&T is counting on HBO Max to offset its declining
entertainment assets with new income from a growing
direct-to-consumer model. HBO's cable-TV and online distribution
channels have complicated that pivot. In the September quarter, the
overall number of customers watching HBO in any form rose to 38
million in the U.S. and 57 million world-wide, exceeding the
company's target for the year.
Some HBO viewers remain unaware that their subscriptions entitle
them to the new content-heavy app, while others are unable to
upgrade because of business disputes that have kept the service off
Amazon.com Inc. and Roku Inc. devices.
AT&T shares rose 1.5% to $27.13 premarket after release of
news of growth in the wireless unit, the company's largest in terms
of revenue and profit. The stock has dropped more than 30% so far
Write to Drew FitzGerald at email@example.com
(END) Dow Jones Newswires
October 22, 2020 08:16 ET (12:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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