AT&T saw overall revenue decline in the second quarter and reported losses in its legacy video business due to cord cutting, even as the company added DirecTV Now subscribers and received a $1.13 billion boost from its new WarnerMedia division.
AT&T on Tuesday reported consolidated revenue, including the impact of an accounting change and 16 days of Time Warner results, of $38.99 billion, down about 2 percent from the year ago period.
The telecom giant’s Entertainment Group, which includes its DirecTV and U-Verse operations, saw revenue drop 8 percent to $11.7 billion.
AT&T lost 286,000 DirecTV subscribers, which was partially offset by the addition of 342,000 DirecTV Now customers. That brings the total for its OTT service to 1.8 million, but the company’s satellite subscriber base is now shrinking by 4.2 percent year over year. AT&T also reported adding 24,000 U-Verse subscribers, for a net total of 80,000 video additions.
The company reported adding 76,000 IP broadband subscribers, and lost 53,000 DSL customers.
WanerMedia, meanwhile, which includes HBO, Turner and Warner Bros. saw revenues rise to $7.8 billion, up from $7.3 billion.
“Time Warner joins us coming off an impressive second-quarter. Turner turned in solid subscription and advertising revenue growth, Warner Bros. is in high gear with a record number of series in production, and HBO delivered strong subscriber revenue growth,” CEO Randall Stephenson said in a statement.
Turners ad and subscription revenue were up 3 percent and 6 percent, respectively, while total revenue of $3.2 billion was up 4 percent. For the second quarter Warner Bros. revenue increased 11 percent to $3.3 billion, while HBO revenue of $1.7 billion was up 13 percent.
On Tuesday’s quarterly earnings call Stephenson said AT&T has assembled the key elements of a modern media company.
“Whether it’s Netflix, Amazon, Google, Disney or Comcast, everybody is now pursuing the same thing,” Stephenson said. “How do you deliver great media and entertainment experiences to our customers? And I think the recent valuations of media companies is reinforcing this point.”
“But just owning great content is no longer sufficient,” he added. “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.”
Stephenson pointed to AT&T’s more than 170 million direct-to-consumer relationships across its wireless, video and broadband businesses, saying they are “critical” as the company aims to develop new media experiences for various audiences and invests in advertising technology.
“So you take these three elements, 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,” Stephenson said.
Still, MoffettNathanson analyst Craig Moffett noted that AT&T’s figures show a contracting legacy business.
“Amidst all the self-congratulatory headlines about growth here and growth there and about raising full year guidance, the numbers themselves tell a very different story,” Moffett wrote in a Tuesday research note. “Virtually every single part of legacy AT&T is shrinking. And in virtually every business, margins are falling as well.”
