AT&T plots cable-cutter contingency: power up HBO and turn AppNexus loose on WarnerMedia

During the quarter, the wider AT&T group, which encompasses advertising, telecoms and entertainment, earned revenues of $7.8bn, up from $7.3bn a year earlier. For the year it missed revenue targets, its $38.99bn falling short of the projects $39.39bn.

On the TV side, AT&T is not alone in losing linear customers as consumers broadly drift online; DirecTV and U-Verse lost a combined 262,000 subscribers in the quarter.

On the other hand, DirecTV Now, its online subscription service, brought in 342,000 users, suggesting that its contingency for cable cutters is working. This brought its TV customerbase to around 25.5m, where it has stagnated for two years.

What Next?

Randall Stephenson, chairman and chief executive of AT&T said that the group has “now assembled the key elements of a modern media company”. It aims to up its production of a “wide array of premium content” as, in his view, nothing fuels consumer engagement more than high-quality premium content. He pointed to Netflix, Amazon, Google, Disney or Comcast as examples.

Stephenson hailed the group's assets, listing CNN, NBA, March Madness, NFL, MLB, PGA and HBO (which already has its own subscription service HBO GO). He also pointed to Turner’s cable network, CNN.com and Bleacher Report.

Direct to consumer relationships will be how the company goes forward as “owning great content is no longer sufficient,” he added: “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.”

170m customers will be subject of the group’s adtech offering, recently bolstered by the $2bn acquisition of AppNexus.

He noted: "These 170m relationships provide invaluable insights for new advertising models, and that's exactly what's behind our investment in ad technology.

"We deliver ads on DirecTV and when we do this, our advertising yields improve by three to five times."

New acquisition Turner has three times the inventory of DirecTV, leading Stephenson to predict further growth in the coming months.

Overall, it said AT&T's Advertising & Analytics delivered double-digit revenue growth, including 16% growth in the second quarter.

AT&T execs outlined plans to build upon these figures by creating more premium content through HBO and more effectively monetising its direct to consumer services with AppNexus’ capabilities.

At the time, Rob Webster, the chief strategy officer at digital agency Crimtan, described the move as an “ideal fit” for AT&T, especially now it finds itself with a substantially larger content library.

He concluded: “So you take premium content, 170 million direct-to-consumer relationships and great ad technology and then you combine those with our high-speed networks, and we think all of this is a game changer.”

HBO Awakens

John Stankey, chief executive of WarnerMedia also outlined the ambition to double down on premium shows through HBO.

“HBO's name is synonymous with quality entertainment. The creative talent at HBO is the best in the industry," he said. "My goal is to give the HBO team the resources to greenlight additional projects already in the development funnel.”

He wants more projects to enter the HBO workflow but indicated that it is important to maintain the high quality the brand is known for. “This will further strengthen the HBO brand, enhance the customer experience, improve churn and drive more engagement with some of our most valued customers.”

HBO Now also figures into its direct-to-consumer plans, and is looking to roll out internationally more effectively. “We believe there's a lot of opportunity that remains in this area.”

Stankey noted that it is still “very early in the game” but it will quicken the pace of development in the coming months.