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AT&T Pinched by Cord-Cutting and Closed Theaters --Update

10/22/2020 | 08:17am

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 businesses.

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 business.

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 forecasts.

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 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 this year.

Write to Drew FitzGerald at

(END) Dow Jones Newswires

10-22-20 0816ET

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