AT&T plans to boost HBO’s programming budget to help the network retain its perch as the leader in premium television programming, the new chief of WarnerMedia said Tuesday.
“We want to increase our investment in premium content,” John Stankey, head of AT&T’s newly acquired business unit WarnerMedia, said during the Dallas telecommunications giant’s second-quarter earnings call. Its new division is composed of HBO, Turner channels, including CNN, and the Warner Bros. television and movie studio in Burbank.
The network is facing rising competition from Netflix, Amazon and other deep-pocketed tech companies that have been stocking their streaming services with big-budget dramas and comedies.
Tuesday’s earnings call was Stankey’s first opportunity to provide Wall Street with a glimpse into his strategy for HBO and other businesses since AT&T finalized its $85-billion takeover of Time Warner Inc. The U.S. Justice Department sued to block the merger, but AT&T prevailed in court. The department is appealing the decision.
Stankey has been trying to tamp down speculation that he was unhappy with HBO’s programming — or its management team. In a recent town hall meeting, he told HBO staff to prepare for “a difficult year.”
The problem was not one of management — or programming taste — but the fact that HBO’s production pipeline was restricted as the network waited for government approval of the AT&T-Time Warner merger, Stankey said. Consequently, HBO did not have enough programming to keep customers engaged year round.
“My goal is to give the HBO team the resources to green light additional projects already in the development funnel,” Stankey said. “We want to invest more in original content while still retaining the high quality and unique brand position of HBO.”
Stankey declined to specify how much more HBO would be given to spend on content. The premium network currently spends about $2 billion a year for programming, including licensing fees for Hollywood movies, according to research firm Kagan. Much of that goes toward HBO’s original productions, such as its cinematic “Westworld” series and comedies such as “Silicon Valley” and “Last Week Tonight with John Oliver.”
In contrast, Netflix is expected to spend at least $10 billion on programming this year, according to an estimate by Goldman Sachs. Earlier this month, Netflix surpassed HBO in the number of Emmy nominations it garnered with 112. HBO claimed 108 nominations, including 22 for “Game of Thrones,” but it was the first time since 2001 that HBO failed to receive the most nominations.
Stankey also noted that Warner Bros. would produce more than 75 television series this year — the most ever by the venerable Burbank studio.
Revenue at WarnerMedia increased to $7.8 billion, compared with $7.3 billion in the second quarter of 2017, fueled by growth at Warner Bros. and HBO. HBO’s revenue in the second quarter grew 13% to $1.7 billion from a year ago, due to gains in subscriptions.
The gains helped AT&T compensate for another quarter of traditional TV subscriber losses, including at its El Segundo-based DirecTV. The company lost 286,000 satellite-TV customers during the quarter — considerably more than the first quarter of the year, when DirecTV shed 188,000 customers. However, the DirecTV Now streaming service added 342,000 customers in the quarter, boosting its total to 1.8 million.
AT&T’s overall profit in the second quarter totaled $5.13 billion, or 81 cents a share, up from $3.92 billion, or 63 cents, a year ago. Revenue dropped 2.1% to $38.99 billion.