AT&T Keeping DirecTV Cards Close to Vest

Dish Network’s Charlie Ergen may think it’s “inevitable” about a satellite TV merger with AT&T’s DirecTV, but AT&T COO John Stankey is keeping his cards close to the vest.

Speaking March 3 at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, Stankey appeared open to industry consolidation while underscoring the strength of satellite TV’s rural customers.

Characterizing any merger as “a little problematic” due to regulatory issues, Stankey reiterated that the $48.5 billion acquisition of El Segundo, Calif.-based DirecTV in 2015 was always about securing video customers for future distribution technology, i.e. over-the-top video and high=speed Internet.

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“We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes, more rural or less dense suburban areas,” Stankey said. “We’ll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have.”

AT&T’s WarnerMedia Entertainment is about to launch subscription service HBO Max in May, while just-released AT&T TV (formerly DirecTV Now) bowed March 2.

“We’re really pleased with what we saw [with AT&T TV] … that we would be able to replicate how customers were receiving the product in the other markets that we would enter where we own facilities and are able to pair video with broadband,” Stankey said.

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Regardless, at the time of the 2015 acquisition, AT&T U-verse and DirecTV had a combined 26 million customers in the United States and more than 19 million customers in Latin America, including Mexico and the Caribbean.

Flash-forward to the end of 2019 and AT&T had 19.5 million domestic pay-TV subscribers, with another 13.3 million in Latin America. That’s a decline of 25% and 30%, respectively.

Wall Street analyst Craig Moffett contends regulatory issues shouldn’t be a problem for DirecTV and Dish as they were in 2002 when the Justice Department sued to block a deal, saying the merger would stifle competition and hurt consumers.

“Satellite TV was growing by leaps and bounds at the time. Now it is in free fall. That alone may be enough to settle the debate; sure, two would be better than one, but both are credible bankruptcy risks on their own. Heck, they’d be a credible bankruptcy risk even together,” Moffett wrote in Sept. 30, 2019 note.

He contends a merger argument could best be presented to regulators as an act of preserving pay-TV for rural Americans without access to high-speed Internet.

“[That] would be a reasonably persuasive one,” Moffet wrote.

 

AT&T Outlines How It Will Jumpstart HBO Max Subscriptions

In the rush to validate expensive forays into proprietary over-the-top video distribution, media/tech giants such as Disney and Apple have partnered with third-party vendors and/or leaned on subsidiaries to boost subscriber retention.

HBO is no different.

During AT&T’s Jan. 29 fiscal call, WarnerMedia CEO John Stankey, who is also president and COO of the telecom parent, disclosed details how company plans to support the May debut of HBO Max — the SVOD platform company executives contend is better than the competition, including Netflix.

Indeed, AT&T said it bypassed $1.2 billion in fourth-quarter ($2.8 billion in annual) revenue forgoing third-party licensing of Warner Bros. Television properties “Friends” and “The Big Bang Theory,” among other shows, in advance of the Max launch.

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AT&T is going to give Max free to existing HBO subs through DirecTV and AT&T U-verse — or about 10 million consumers. The number is significant, since that’s the tally Disney said it generated in the first 24 hours after launching Disney+, assisted in part by a promotion with Verizon affording the telecom’s data subs with a free year of service.

Apple, which reportedly already has more than 33 million Apple TV+ subs, is giving a free year of service with any new purchase of an iPhone, iPad, Mac or Apple Watch.

Meanwhile, the eight million HBO Now subs (currently paying the identical $14.99 Max fee) will be automatically eligible for a Max upgrade without cost provided they do not access the OTT service through third-party platforms such as Roku, Apple TV, Amazon Channels, Google Chromecast or Hulu, among other devices.

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AT&T will also incentivize its “highest ARPU” wireless subscribers with promotional Max offerings, in addition to foot traffic at any of the telecom’s 5,500 branded retail locations in the U.S.

“It’s a great opportunity to improve our overall churn [subscriber retention], which we’ve seen happen from giving HBO to current unlimited [wireless] customers,” Stankey said.

“With Max, we’ll offer consumers more than twice the amount of programming for the same price as HBO today,” he added.

Stankey said going forward HBO’s 34 million domestic linear subscribers should expect to see more generalized entertainment content, including unscripted reality shows, news and sports.

“It’s an important dance and choreography [with linear TV distributors] that we have to do to get right,” he said. “And we feel we’re positioned very well to make that happen.”

 

AT&T Drops Nearly 950K Q2 Pay-TV Subs, Including 168K DirecTV Now Customers

The hits keep coming to AT&T’s legacy pay-TV and nascent over-the-top video operations.

The telecom giant July 24 disclosed it shed 778,000 video subscribers in the second quarter (ended June 30) across its DirecTV and AT&T U-verse pay-TV operations. That compared to a sub loss of 262,000 customers during the previous-year period.

AT&T attributed the loss to an increase in customers rolling off promotional discounts, competition and lower gross adds due to a focus on the “long-term value [i.e. higher paying] customer base.”

“We expect this level of losses to continue and are predicting we need to get through … some of the other, if you will, less value-conscious-focused promotions that we’ve done in prior years,” CFO John Stephens said on the fiscal call. “That will take us through the end of the year to do that.”

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The company ended the period with 21.5 million subscribers – about 2 million fewer subs than a year ago.

DirecTV Now, AT&T’s standalone online TV service, continues to lose subscribers attracted to the initial loss-leader pricing.

The OTT service lost 168,000 subscribers in the quarter after adding 343,000 in the previous-year period. AT&T attributed the decline to higher prices and less promotional activity.

DirecTV Now ended the quarter with 1.34 million subs – about 469,000 fewer subs than the 1.8 million subs reported last year.

AT&T lost 34,000 high-speed Internet subscribers as it continues to transition broadband subs to its faster fiber network. Indeed, the company added 318,000 fiber subs.

It ended the period with 13.8 million broadband subs, including 3.4 million fiber. That compared with 13.7 million broadband subs and 2.2 million fiber customers last year.

Report: Pay-TV Providers Lost 1.3 Million Subs in Q1

It was a bad quarter for the pay-TV business.

New data from Leichtman Research Group found that the largest pay-TV providers in the U.S. — representing about 95% of the market — lost more than 1.3 million video subscribers in the first quarter (ended March 31) — up 426% from a net loss of 305,000 subs in the previous-year period.

Pay-TV providers now account for about 87.8 million subscribers — with the top six cable companies having 46.7 million video subscribers, satellite TV services (28.3 million subs), telephone companies (8.9 million), and the top publicly reporting online TV with 3.9 million subs.

Satellite TV services such as Dish Network and DirecTV drove pay-TV losses with about 810,000 subs dropping service compared to a loss of about 375,000 subs in the previous-year period.

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Cable operators lost about 335,000 video subs — compared to a loss of about 285,000 subs last year. Telephone providers lost 105,000 video subs, up from a loss of 50,000 subs last year.  Online TV services lost 75,000 subs, compared to a gain of 405,000 subs last year.

Notably, AT&T had a loss of about 625,000 subs across its three pay-TV services (DirecTV, AT&T U-verse, and DirecTV Now) compared to a gain of 125,000 subscribers in 2018.

“The leading pay-TV provider in the U.S., AT&T, accounted for 47% of the net losses in the quarter,” analyst Bruce Leichtman said in a statement. “[The quarter] was the third consecutive [period] of record pay-TV net losses.  This accelerated downturn in the pay-TV market coincided with the decisions by AT&T and other providers to increasingly focus on long-term profitability when acquiring and retaining subscribers.”

 

Pay-TV Providers Subscribers at end of 1Q 2019 Net Adds in 1Q 2019
Cable Companies
Comcast 21,866,000 (120,000)
Charter 16,461,000 (145,000)
Cox 3,980,000 (35,000)
Altice 3,297,300 (10,200)
Mediacom 764,000 (12,000)
Cable ONE 320,611 (11,500)
Total Top Cable 46,688,911 (333,700)
Satellite Services (DBS)
DirecTV 18,679,000 (543,000)
Dish Network 9,639,000 (266,000)
Total DBS 28,318,000 (809,000)
Phone Companies
Verizon FiOS 4,398,000 (53,000)
AT&T U-verse 3,704,000 0
Frontier 784,000 (54,000)
Total Top Phone 8,886,000 (107,000)
Online TV
Sling TV 2,424,000 7,000
DirecTV Now 1,508,000 (83,000)
Total Top Online TV 3,932,000 (76,000)
Total Top Providers 87,824,911 (1,325,700)

 

 

WarnerMedia OTT Video Platform to Offer Three Service Tiers

WarnerMedia’s much-anticipated over-the top video platform launching in the fourth quarter of 2019 will include three levels of service: an entry-level movie-focused package; a premium service with original programming and theatrical movies; and a third service that bundles content from the first two plus an extensive library of Warner Bros., HBO and Turner programming and licensed content.

Speaking Nov. 29 at the telecom’s analyst day event in New York, CEO John Stankey, CEO of WarnerMedia said the company’s unnamed/unpriced SVOD service would complement existing business (i.e. HBO Now with 5 million subscribers); benefit current distribution partners; expand the audience and increase engagement around content; and provide data and analytics to inform new products and better monetize content.

Stankey said the SVOD service would be a combination of original content, movies, TV shows, library fare and third-party programming.

“It’s a software experience wrapping creative excellence, that we’re going to showcase specific brands … to help the consumer find the right kind of curated content they want,” he said. “It’s gotta be a great value proposition.”

Separately, CEO Randall Stephenson said the merger with Time Warner continues to take a lot of time …”Unfortunately, a lot of it involve[s] litigation with the government.”

The CEO was referring to the Justice Department’s decision to appeal an unfavorable federal judge’s antitrust decision approving AT&T’s $85 billion acquisition of Time Warner.

The U.S. District Court of Appeals in the District of Columbia is expected to rule early next year.

“We are well positioned for success as the lines between entertainment and communications continue to blur,” said Stephenson. “If you’re a media company, you can no longer rely exclusively on wholesale distribution models. You must develop a direct relationship with your viewers. And if you’re a communications company, you can no longer rely exclusively on oversized bundles of content.”

Indeed, AT&T’s core DirecTV pay-TV service suffered through one of its worst fiscal quarters, losing nearly 350,000 subscribers. The losses were offset to a degree by DirecTV Now, the standalone SVOD service with about 1.8 million subs.

AT&T warned that elimination of promotional pricing at DirecTV Now would likely result in negative net sub adds in the fourth quarter of 2018 and in 2019.