Is WarnerMedia’s Dual Theater-HBO Max Film Strategy Really Working?

After what one analyst described as a “disappointing” first quarter, the next three months will be telling

The jury is still out on if WarnerMedia’s bold plan to give HBO Max access to Warner Bros.’ 2021 films leading to any kind of dramatic increase in subscriptions.

Over the past two quarters, HBO Max has grown by a clip that seems modest but fairly stable. On Thursday, AT&T reported that HBO Max and HBO collectively have 44.2 million subscribers. That’s up slightly from the 41 million AT&T had at the end of 2020.

The next few months will give us the best indication if WarnerMedia’s industry-smashing plan was crazy like a fox or just plain crazy, as high-profile movies like the Lin-Manuel Miranda musical “In the Heights” premiere in time for summer.

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HBO Max still lags far behind fellow big streaming newcomer Disney+, which has already cut Netflix’s lead in half with 100 million global subscribers. AT&T has just under 64 million global subs.

Digging into the numbers further, AT&T reported that of those 44.2 million paying customers, 40 million are considered subscribers of HBO Max in some form. 30.9 million are “wholesale” subscribers, meaning that they get access to HBO Max through an existing HBO subscription or as part of a bundle with other AT&T services. However, it is not clear if all of those 30.9 million have “activated” their subscription, and this number only grew by 150,000 in the first quarter — which suggests that WarnerMedia is maxing out on the available pool of existing subs to convert.

That’s why the increasingly important number to look at is HBO Max’s “retail” subscribers, those who sign up specifically for an HBO Max subscription. Since the streamer’s launch last May 27, the company has signed up 9.7 million new subscribers. That figure increased by 2.8 million last quarter, compared to 3.26 million during the last three months of 2020 (Netflix has only had one quarter since 2012 where it gained more than 2.7 subscribers in the U.S., though its growth has largely come from oversees in the last handful of years.)

What happened in those last three months? First, “Wonder Woman 1984” had its Christmas Day premiere after multiple delays. Upon its release, “WW84” logged a whopping 2.3 billion minutes of viewing on Nielsen’s streaming charts, beating out fellow holiday release “Soul,” which logged around 1.6 billion minutes on Disney+.

“In the Heights” (Photo: Warner Bros.)

In November, WarnerMedia made the shocking announcement that it would debut its entire 2021 film slate on HBO Max the same day each would hit theaters. But the number of people who specifically purchased an HBO Max sub declined in the first three months of this year despite the promise of at-home access to feature films like Oscar contender “Judas and the Black Messiah” and the animated “Tom & Jerry.” Though not part of Warner Bros.’ theatrical film slate, Zack Snyder’s version of “Justice League” also debuted on the service during the quarter as well.

We won’t count “Godzilla vs. Kong,” which premiered on March 31, the final day of the quarter. The second quarter also features bigger releases like “Mortal Kombat” (which comes out Friday), “The Conjuring: The Devil Made Me Do It,” and Miranda’s “In the Heights.” We’ll have a much better idea for how this hotly contested strategy is working out in terms of driving subscriptions.

“It’s not worth it. The tradeoff for all these guys is lost box office revenue versus lifetime value of subscribers added,” Wedbush’s Michael Pachter told TheWrap. He added that however many streaming subs Warner gains is unlikely to offset the lost box office revenue.

The “secret to success is not day-and-date movies” for HBO Max, Pachter argued, but rather to get around five or six popular TV series and spread them out through the year to keep people subscribed. January 2022 “can’t come soon enough,” he added.

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Another streaming-focused analyst was even more blunt, calling AT&T’s quarter “flaccid”; the analyst also said AT&T probably underestimated how fast movie theaters would reopen — making its day-and-date strategy look like a poor bet, only a few months after placing it.

“I think the 2.7 million subscriber number, frankly, has to be pretty disappointing to them,” the analyst said. “I’d be willing to bet they believed there would be more of a benefit to the Snyder cut.”

AT&T CEO John Stankey sounded a much different tune and pointed to “Godzilla vs. Kong” as a reason their strategy is working. “It’s playing out exactly as we kind of laid out,” Stankey said Thursday during AT&T’s earnings call. “We’ve got more of the year to get through to see what that balance is between theatrical revenues vs SVOD, but when you look at the customer growth on SVOD and you see some of the early data coming back on movies like ‘Godzilla Vs Kong’ on the theater, I think you can all see there’s probably a pretty compelling rising tide lifting all boats in this case. We feel it was the right call for the moment we were in because of the pandemic.”

“Godzilla vs. Kong” also drew what Stankey described as HBO Max’s “largest audience” is set to become the first pandemic-era box office release to gross more than $100 million.