Content is (still) king
by Martha DeGrasse 8/21/21

Carrier capex can be seen as the tower industry’s lifeblood, and anything that increases investment in infrastructure is generally viewed as positive. Shares of Crown Castle, American Tower and SBAC all traded higher after AT&T announced plans to increase annual capex from roughly $21 billion this year to $24 billion per year following the close of its WarnerMedia spin-off.

AT&T’s media exit will clearly provide an immediate boost to its network investment. But in the long run, the wireless infrastructure industry may benefit more from carrier commitments to content than from divestitures.

It’s been 25 years since Bill Gates published an essay entitled Content is King, predicting that successful content creators would be the biggest beneficiaries of a new technology called the Internet. Today the Internet is moving to mobile, and mobile carriers know they need content. 

Ted Lasso, The Walking Dead and Customer Conversions

T-Mobile US said last week it is giving a free year of Apple TV+ to all new and existing customers on its Magenta and Magenta Max plans, a move likely to help it retain some subscribers who might have considered churning in the wake of a massive data breach impacting millions of T-Mobile customers. Content deals were part of T-Mobile’s playbook long before Ted Lasso. Four years ago its Netflix On Us promotion was seen as innovative; now such deals are commonplace for carriers.

Verizon CEO Hans Vestberg is perfecting the art of the content deal. Although the company is divesting its media assets, it is doubling down on partnerships with content companies, including Discovery, which is now set to merge with WarnerMedia. 

Verizon’s newest content partner is AMC+. The carrier is offering eligible customers up to one year of free access to the streaming service, as well as early access to the final season of The Walking Dead. 

AMC+ joins Discovery Plus, Disney Plus, Apple Arcade, Apple Music, and Google Play as a Verizon content partner. During the carrier’s second quarter earnings call, Vestberg noted that Verizon will get a share of the revenue generated when the free trials end and customers convert to paying subscribers. 

The quest for content

Carriers have recognized for years that content is a differentiator that can keep them from becoming “dumb pipes.” Outright acquisitions of media companies proved too costly once the price of 5G spectrum became clear, but that doesn’t invalidate the strategy. If anything, the steep prices carriers have had to pay for spectrum make it imperative that they participate in the revenue that spectrum can generate. So far, consumers haven’t been willing to pay for 5G. But they are willing to pay for streaming content. 

Even WarnerMedia, portrayed in the press as AT&T’s “ill-fated media play” and “Hollywood misadventure,” is seeing healthy growth for its HBO streaming services. By April 2021, HBO had already proven its potential to Wall Street. At the end of Q2, HBO and HBO Max had 47 million U.S. subscribers, more than Disney Plus has in all of North America, according to published reports. HBO/HBO Max also beats Disney Plus in average revenue per subscriber. AT&T spun off WarnerMedia because it needed to, not because it isn’t a good business. 

Maybe AT&T bit off more than it could chew with WarnerMedia, but the premise of blending connectivity with content is solid. Carriers that do it successfully are more likely to generate the cash flow they need to invest in their networks for years to come.