AT&T Closes DirecTV Spinoff, Video Services Branded DirecTV Stream

AT&T and TPG Capital have closed their transaction establishing a new company named DirecTV. The new company will own and operate the DirecTV, AT&T TV and U-verse video services previously owned and operated by AT&T.

The newly branded DirecTV Stream will become the single brand for video streaming services previously launched by AT&T, excluding HBO Max. The transition will happen later this month. As a part of the deal, AT&T satellite, streaming or IP video customers will automatically keep their video service, any bundled wireless, internet or HBO Max services, and associated discounts with no action needed.

Not included in the transaction are WarnerMedia’s HBO Max streaming platform and regional sports networks, both of which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT&T’s Latin American video operations, which are being sold to Grupo Werthein); U-verse network assets; and AT&T’s Sky Mexico investment. DirecTV will continue to offer HBO Max to subscribers along with any bundled wireless or broadband services and associated customer discounts.

DirecTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.

AT&T contributed its U.S. video business unit to the new entity in exchange for preferred units as well as a 70% interest in the common units of DirecTV. TPG contributed approximately $1.8 billion in cash to DirecTV in exchange for preferred units and a 30% interest in common units of the new company.

The DirecTV board will include Bill Morrow, CEO of DirecTV, and voting board members Steve McGaw and Thaddeus Arroyo, appointed by AT&T; and David Trujillo and John Flynn, appointed by TPG.

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“This is a watershed moment for DirecTV as we return to a singular focus on providing a stellar video experience,” Morrow said in a statement. “Building on our recent momentum, we are well-positioned to bring unparalleled choice and value to all of our customers under one iconic brand, whether they beam it or stream it.”

At close, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt.

Is Shine Off Online Pay-Television?

Lost in the hoopla of Disney+ surpassing 103 million subscribers in the second quarter (ended April 3) was the reality that the online TV market leader, Hulu + Live TV, lost 200,000 subscribers during the same quarter. The 5% decline from 4 million subs likely attributed in part to a $10 price hike Disney imposed upon the platform last December.

But Hulu isn’t alone. Sling TV, which Dish Network launched in 2015, lost 100,000 subs in the quarter to 2.37 million. AT&T TV, formerly DirecTV Now and AT&T TV Now, reportedly declined to around 650,000 subscribers in early 2020 — about two-thirds fewer subs when the service launched in 2018.

And Google-owned YouTube TV saw its 3 million-sub base unchanged over the past four months, while T-Mobile this year threw in the towel on its upstart TVision platform with about 100,000 subs. Sony’s PlayStation Vue service shuttered in January 2020 after almost five years of sluggish sub growth.

That’s a trend in the wrong direction considering TDG Research in December 2020 predicted strong growth for the 6-year-old market.

“The number of virtual pay-TV households will increase five-fold by the end of the next decade, topping 24 million by 2030,” senior analyst Joel Espelien wrote in a December 2020 note. “Importantly, this growth will come almost exclusively at the cost of legacy subscriptions.”

Indeed, fuboTV and Philo have added subscribers, the former tacking on 42,550 subs to top 590,000 subs in the quarter. Philo says that as of August 2020, it had 750,000 subs.

Overall, the top publicly reporting Internet-delivered pay-TV services combined for about 6.7 million subs — less than 10% of the top pay-TV providers with about 78.7 million combined subs.

“A whole generation of customers likely viewed [online TV] quizzically, as a solution to a problem they didn’t have,” MoffettNathanson wrote in a note last year. “The real issue was the grid. Not the user interface grid, by the way, but instead the very idea of a [program] schedule. Why would anyone want to view entertainment content on a schedule, much less someone else’s schedule?”

AT&T Dropping ‘Now’ Online TV Service

AT&T has quietly dropped offering new subscriptions to AT&T Now TV, the erstwhile DirecTV Now online television service aimed at replacing traditional pay-TV and competing with Sling TV, Philo TV, YouTube TV and Hulu with Live TV, among others.

AT&T Now TV has been replaced by AT&T TV, which offers consumers three programming options priced from $69.99 to $94.99, with the  more expensive plans featuring a free year of HBO Max. While the addition of Max might seem intriguing, Now TV was priced from $55, with a $79 option including free access to Max.

“AT&T TV Now packages are no longer available for new customers,” reads the AT&T website.

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Now TV (a.k.a. DirecTV Now) was launched on Nov. 28, 2016, with much fanfare for $35 monthly, quickly adding 200,000 subs by the year’s end. The service topped out at 1.86 million subs in 2018, before losing about 1.2 million subs through Sept. 30, 2020 after AT&T instituted price hikes.

AT&T has now hung much of its digital future on HBO Max, with AT&T TV seen as backstop to ongoing DirecTV and AT&T U-verse pay-TV subscriber declines. U-verse lost about 4 million combined subscribers in 2019.

 

AT&T Drops ‘Watch TV’ Sign-Ups

AT&T has begun informing users that it will no longer offer its low-budget AT&T Watch TV service to new and returning subscribers.

“Standalone WatchTV is no longer available for new sign ups or to re-subscribe,” AT&T said in a statement. “Existing WatchTV customers who subscribe to the app or have a qualifying AT&T Unlimited plan can continue to use the service. Customers on a qualifying AT&T Unlimited plan with the WatchTV benefit can create a separate account.”

Launched in 2018 during AT&T’s contentious regulatory battle with the DOJ over its $85 billion acquisition of Time Warner, and targeting the younger high school and college-age demo using mobile devices, AT&T Watch TV is a $15 a month streaming service featuring select channels and no DVR.

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With the rebranding of DirecTV Now to $39.99 AT&T TV in March, the telecom-turned-media-giant is streamlining its streaming portfolio. AT&T TV also includes access to new subscription streaming video service, and company flagship, HBO Max.

Indeed, the telecom continues to struggle pitching standalone online TV (and linear pay-TV) to consumers. AT&T jettisoned 897,000 combined DirecTV and U-verse subs in the first quarter (ended March 31), in addition to 138,000 AT&T TV members. The one million+ sub loss was up 65.1% from the 627,000 subs lost in the previous-year period.

AT&T Stops Selling New U-verse Pay-TV Service Subscriptions

As expected, AT&T has stopped selling new subscriptions to U-verse, the telecom’s 14-year-old pay-TV service, in an attempt to move consumers toward upstart online TV service AT&T TV (formerly DirecTV Now).

“To help our employees serve our existing customers, we’re no longer selling U-verse TV. Service for existing U-verse TV customers is not impacted,” AT&T said in a statement on its website.

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AT&T lost more than 3.4 million linear TV subscribers in 2019, including 945,000 subs in the fourth quarter, ended Dec . 31. That included DirecTV and U-verse.

The telecom is pinning much of its video future on AT&T TV and HBO Max — the latter $14.99 monthly SVOD platform slated to launch in May.

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CFO: AT&T TV Streaming Service Focusing on ‘Long-Term Value’ Customers

When AT&T launched online TV platform DirecTV Now in 2016, it offered subscribers access to 60 channels of content for a $34.99 monthly fee. Consumer response was strong with more than 2.5 million people signing up for the promotional pricing, which included a free Apple TV device.

Additional programming price points ranged from $50 to $70 monthly, with a cloud-based DVR in the works. For AT&T, the loss-leader price point aimed at competing against Dish Network’s Sling TV, PlayStation Vue, Hulu with Live TV and YouTube TV, among others. It expected the service to generate 20 million subscribers.

Instead, as the telecom initiated price hikes, subscribers dropped the service — in droves. In the third quarter alone last year, DirecTV Now lost more than 190,000 subscribers. Since 2016, AT&T has lost more than 5 million pay-TV subs.

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The telecom attributed the sub losses to “higher prices and less promotional activity,” meaning that consumers had balked at ongoing price increases and a refusal to extend discounts.

“We’re in the early innings,” COO John Stankey said at the time.

Fast-forward to the Deutsche Bank 2020 Media, Internet and Telecom Conference on March 10 in Palm Beach, Fla., where AT&T CFO John Stephens said it was too early to comment on the recent launch of the rebranded AT&T TV (formerly AT&T TV Now and DirecTV Now before that).

John Stephens

AT&T TV ranges from $59.99 to $79.99 monthly and are only guaranteed for 12 months, with the initial plan increasing to $93 monthly after a year.

Stephens said the telecom spent most of 2019 transitioning through about 2.5 million unprofitable online TV subs who balked at paying prices commensurate with pay-TV.

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“We had a lot of customers that decided that they weren’t going to stay with us,” he said. “The linear TV industry is going through transition. And we’ll continue to see that ourselves.”

The executive believes AT&T TV will “very cost efficiently” add new profitable customers, including people who also subscribe to AT&T broadband or fiber distribution “because it’s so easy to use.”

“We are expecting that by the end of the year, you’ll see improvements in our trends that … will look like the rest of the industry,” Stephens said.

AT&T Launches New Online TV Service

AT&T March 2 launched a new online live TV service, AT&T TV, nationwide following a 13-market pilot test. Powered by Android TV, the platform includes live TV packages and access to third-party apps without having to switch inputs.

Programming choices and voice searches can be done with Google Assistant. AT&T is launching a national advertising campaign next week.

AT&T TV works with a compatible high-speed Internet connection. Customers can bundle AT&T TV and 1 gigabit of data are available for $39.99/month for video and $39.99/month for Internet for 12 months with a 24-month TV agreement.

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Separately, 1 gigabit of AT&T Internet is available for $49.99/month for 12 months with a 24-month agreement.

“Our customers told us what they want from their TV service and we built AT&T TV around that,” Thaddeus Arroyo, CEO of AT&T Consumer, said in a statement.

AT&T TV includes live TV packages, sports and access to more than 5,000 apps on the Google Play Store, including HBO Max when it launches in May.

Subscribers can switch between a live basketball game, Netflix, YouTube or listen to music on Pandora or Spotify without switching inputs. The platform includes a cloud-based DVR with 500 hours of storage.

AT&T TV, which replaces shuttered DirecTV Now, joins a niche market that includes Sling TV, YouTube TV, Hulu with Live TV, Philo TV and fuboTV, among others.

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AT&T TV Launch Set for Feb. 27

AT&T’s rebooted online TV platform, AT&T TV, is reportedly set to launch on Feb. 27. The service is a rebranding of DirecTV Now, the online TV service that launched to much fanfare at $34.95 monthly before hemorrhaging subscribers following a price hike.

The new service will be priced at $59.99 and requires a two-year contract. The service features 4K functionality and includes 500 hours of DVR space.

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Whether AT&T TV will succeed where DirecTV Now failed remains to be seen. DirecTV Now lost nearly 20% of its subscribers in the six months after it raised prices. DirecTV Now subs dropped from 1.8 million to 1.3 million in the past year.

AT&T posted an overall 946,000-subscriber loss, which included DirecTV satellite and U-verse wireline TV services. Things got worse in 2019 with the telecom announcing it lost more than 3.4 million linear TV subs, including 945,000 subs in the fourth quarter, ended Dec . 31.

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AT&T TV Streaming Service Launching in February 2020

AT&T’s complicated path to online television distribution is getting a little clearer. The telecom giant plans to roll out a branded service called AT&T TV next February, according to Jeffery McElfresh, CEO of AT&T Communications.

Speaking Dec. 12 at Barclays Global Technology, Media and Telecommunications Conference in San Francisco, McElfresh said 2019 was the high point for pay-TV subscriber losses, which included DirecTV, AT&T U-verse, AT&T Watch and AT&T TV Now (formerly DirecTV Now).

AT&T Communications CEO Jeffrey McElfresh

The telecom’s pay-TV and OTT sub losses in 2019 have been staggering. AT&T lost 1.4 million AT&T TV subs in Q3, not including 195,000 OTT. The company lost 950,000 pay-TV subs in Q2, excluding 168,000 DirecTV Now subs. It lost another 544,000 subs in Q1, on top of 85,000 OTT.

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Indeed, the DirecTV Now losses, which have been troubling in light of the marketing and company push toward OTT distribution around a known satellite brand, prompted a branding change to AT&T TV Now.

“As you think about the subscriber volumes of our legacy business, we will improve the performance of that,” McElfresh said without elaborating. “But our growth agenda is on 5G [which just bowed in 10 cities], our entertainment group and on AT&T TV that will be offered nationwide.”

He said the lower capital expenditures involved in OTT distribution and technological improvements would help AT&T TV reach the finish line.

The odds are not in the telecom’s favor. Since launching in 2015 with Sling TV and Sony PlayStation Vued, the online TV business has been considered an antidote to SVOD and savior for legacy pay-TV. But consumer interest has stagnated.

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Sling remains the market leader with about 2.6 million subs. But DirecTV Now, which reached 1.5 million subs through loss-leader pricing, saw subs drop the service following a price hike. And shuttering PlayStation Vue never gained much traction beyond 500,000 subs.

“We’ll grow … in our pay-TV business with AT&T TV, coupled with a focus on our fiber broadband footprint driving incremental penetration,” McElfresh said. “And that’s how we balance out our entertainment group’s performance in 2020 and beyond.”

CFO: AT&T TV Sub Loss Peaked in Q3

When AT&T launched DirecTV Now in 2015, the telecom had big hopes the standalone online TV service would help migrate pay-TV subs to over-the-top distribution.

The media company envisioned gradually weaning consumers from the cable guy (U-verse) and satellite (DirecTV) to streaming video and competing against Sling TV, (shuttering) PlayStation Vue, YouTube TV and Hulu with Live TV, among others.

Initial consumer response to the loss-leading $34.99 monthly service was strong, quickly generating 1.8 million subscribers. Then came a $5 price hike, and DirecTV Now began hemorrhaging subs — losing 83,000 subs in Q1 after shedding 267,000 subs in Q4 2018. It lost another 168,000 DirecTV Now subs in Q2.

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AT&T had seen enough, changing the DirecTV Now brand name to AT&T TV.

Speaking Dec. 3 at the Wells Fargo Technology, Media & Telecom Conference in Las Vegas, CFO John Stephens said the worst is behind sub losses for AT&T TV. Indeed, the telecom lost a whopping 1.4 million AT&T TV subs in Q3.

“The transition we are going through is new stuff,” Stephens said. “But we are optimistic we’ve hit the peak sub losses in the third quarter.”

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Stephens said going forward sub losses should be offset by growing broadband subscribers and pending SVOD service HBO Max, which launches early next year, and will be targeted towards AT&T’s 170 million consumers, including mobile and broadband. That tally increases to 200 million when factoring in CNN and sports-themed Bleacher Report.

“We have a base that’s dramatic,” he said.

Stephens contends AT&T’s rollout of 5G wireless and high-speed fiber networks will return AT&T TV to positive growth.

“Access to stream AT&T TV is going to be more efficient,” he said.