AT&T CEO Defends Media Strategy, Including John Stankey as Possible Successor

Facing a boycott of sorts from an activist investor calling for senior management changes at AT&T, CEO Randall Stephenson Sept. 17 sought to outline to Wall Street why the telecom under its current management is on the right path in a rapidly changing media landscape.

Speaking Sept. 17 at Goldman Sachs 28th Annual Communacopia confab in New York, Stephenson said his decision to spend hundreds of billions of dollars acquiring satellite operator DirecTV and Time Warner was based in part on an evolving in a digital ecosystem.

“If you had asked me that question five years ago, I’d be hard-pressed to say it makes sense, in the old world,” he said. “In the new world, it makes all the sense in the world. We believe people are going to spend more and more of their day watching premium content.”

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Stephenson said AT&T has more than 170 million “customer relationships” requiring more bandwidth and connectivity to consume content, which is why he spearheaded the telecom’s $85 billion acquisition of Time Warner two years ago and the $67 billion purchase of DirecTV in 2015.

AT&T also operates 5,500 retail stores nationwide.

But it was those acquisitions, which have ballooned AT&T’s debt exponentially, while at the same time DirecTV and AT&T U-verse continue hemorrhaging subscribers (1 million this year) that led investor Elliott Management, who owns a $3.2 billion stake in AT&T, to write a letter to the board seeking changes.

Specifically, Elliott CEO Paul Singer wants Stephenson and COO John Stankey, who is also CEO of WarnerMedia, replaced.

Stephenson, who says the board will “evaluate [the letter] and see what makes sense for our shareholders,” says the content creation business is changing dramatically — moving from a linear TV distribution business model to over-the-top video.

The executive says WarnerMedia is uniquely qualified to meet the challenge with both himself and Stankey in their current positions.

“It’s a hard play to take a legacy company on legacy distribution models and make a pivot into digital distribution,” Stephenson said. “[Stankey] has done a really nice good job breaking down the [intra-company] silos. He’s got experiences that are long, wide and deep.”

“[WarnerMedia] is one of the largest-scaled TV and film production studios in the world,” he said, adding that AT&T has now become the largest distributor of HBO in the world, including 66% bigger than the premium channel’s No. 2 distributor.

Stephenson said acquiring Time Warner was due to the fact the media distribution world was changing and not growing on legacy pay-TV platforms, but rather digital platforms.

“We’ve had to reorient the business,” he said.

AT&T, Starz Ink New Carriage Agreement, Including OTT Video

AT&T and Starz, a Lionsgate company, Aug. 30 announced a new multiyear content carriage agreement. The deal secures rights for AT&T to offer the full suite of Starz and Starz Encore premium linear and HD channels, on-demand, HD on-demand to subscribers of DirecTV, AT&T TV (formerly DirecTV Now) and U-verse video platforms.

“Our customers want more choice and value in addition to compelling entertainment in our channel offerings,” Daniel York, chief content officer, AT&T Communications, said in a statement.

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“Starz is pleased to have found a mutually beneficial way to extend our relationship over the next several years to give millions of AT&T subscribers access to our acclaimed premium original content and vast library of blockbuster films,” said Jeffrey Hirsch, Chief Operating Officer of Starz. “By working together, both companies are in a position to continue to deliver great value to our shared customers.”

AT&T CEO John Donovan Retiring Oct. 1

John Donovan, CEO of AT&T’s communications segment, which includes wireless and troubled DirecTV and DirecTV Now, has announced he is retiring on Oct. 1.

AT&T has not named a successor, although media reports suggest Lori Lee, CEO of AT&T’s Latin America operations and global marketing officer, could assume Donovan’s position and become the telecom’s most senior female executive.

The 58-year-old Donovan, who has been with AT&T since 2008, helped spearhead the telecom’s $48.5 billion acquisition of satellite TV operator DirecTV in 2014.

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With that service now projected to lose about 2 million subscribers annually to alternative distribution services such as SVOD and online TV, AT&T is struggling to reshape a traditional pay-TV distribution business in the rapidly changing over-the-top video ecosystem.

And simply launching online platform DirecTV Now hasn’t been the answer. The service continues to lose subscribers who signed up for the initial loss-leading $34.99 monthly fee. That fee has been upgraded to $39.99.

Last month AT&T said it was changing the service’s name to AT&T Now. Subsidiary WarnerMedia is launching HBO Max early next year, while continuing to operate HBO Now in its current form in the interim.

Indeed, consumer choice for accessing home entertainment continues to evolve — driven in large part by the actions of Netflix, Amazon Prime Video and Disney-owned Hulu.

Craig Moffett, an analyst for research firm MoffettNathanson, lauded Donovan’s telecommunications contributions to AT&T, while tempering praise with market realities in the overall home entertainment market.

“It’s the entertainment businesses that are the problem,” Moffett told The Wall Street Journal.

Sony Downsizing PlayStation Vue?

Sony Interactive Entertainment reportedly is scaling back its involvement with local television affiliates for its branded PlayStation Vue online TV service.

Cord Cutter News, citing emails sent to affiliates from Sony, said the 4-year-old platform is looking to “deprioritize” Vue in marketing efforts across third-party websites.

Launched in 2015, the same year as Dish Network’s pioneering SlingTV, Vue has struggled to generate significant subscriber scale. The platform reportedly has about 800,000 subs — which pales in comparison to Sling’s 2.3 million.

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In fact, Vue also trails DirecTV Now, which AT&T is rebranding as “AT&T Now,” YouTube TV and Hulu with Live TV.

Vue in July upped the monthly fee of its basic plan by $5 for existing subscribers to $50 monthly, with additional programming tiers “Elite” and “Ultra” priced at $65 and $85, respectively.

A rep from Sony Interactive Entertainment wasn’t immediately available for comment.

OTT Video Consumption Skyrockets

Consumers in the United States continue to migrate toward over-the-top video distribution with streaming viewing hours in the second quarter (ended June 30) more than double (130%) from a year ago, according to new data from Conviva.

While major markets dominate overall domestic streaming consumption, Dallas, Atlanta, and Phoenix are the top 3 cities when streaming video consumption is normalized by population — ahead of tech hubs Boston, New York, and San Francisco.

The percentage of televisions connected to the Internet increased 143%, largely driven by Roku with 173% growth and 43% market share of connected TV viewing. Amazon Fire TV was up 145% in viewing with an 18% share. Apple TV was up 129% to account for 10% share.

“In 2019, streaming is coming into its own,” read the report.

Video-on-demand now accounts for 66% of all viewing hours, up from 59% last year. While mobile devices command near equal share of live versus on-demand viewing at 22.8% and 23.7%, respectively, PCs garner more share of on-demand viewing at 16.5% versus 12.6%, while connected TVs command more share of live at 56.5% versus 53.1%.

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Notably, Roku accounted for the majority of all live viewing via connected TV with 53.8%.

The report found that online TV services such as DirecTV Now, Hulu with Live TV, PlayStation Vue and Sling TV saw triple-digit growth in viewing year over year.

Market dynamics, including consolidation and the increase of hybrid business models from media companies such as NBC Universal, Apple, Disney and WarnerMedia, suggest there is even more room for growth and innovation as the lines between business models blur.

Conviva said the growth gap between studios content creators and online distributors closed even more in Q2 than previous quarters, but content aggregators continue to best other services in terms of consumption as well as quality, with viewing hours up 168% year over year.

Not to be outdone, publishers in the United States also recorded impressive growth of 137% in viewing hours year over year. The overall growth in consumption is indicative of headroom for existing streaming services alongside future entrants.

“Increased competition will also spur innovation and, as the industry saw with hybrid models with subscription and ads, more convergence in business models,” read the report.

Facebook and YouTube saw 15% more videos posted as news media led social media with the largest growth in average total video views, up 197% year-over-year. Entertainment led in growth of views per video, up 99%.
While ad-supported VOD and online TV continue to gain traction among consumers, Conviva found that ad buffering remains a “silent engagement killer” among users.

The difference between a viewer making it past the 5% mark in the video stream depends greatly on whether or not the ad flows correctly. In addition, the average streaming ad length reached 24.87 seconds despite the fact viewership drops significantly with 20+ second ads.

“The TV industry of yesterday was built on inflexible standards, antiquated measurement, and limited data. Streaming offers the vast potential of a rapidly maturing market, flexibility, targeting, and data to understand the audience like never before.”

AT&T Rebranding ‘DirecTV Now’ to ‘AT&T TV Now’

As expected, AT&T has begun informing DirecTV Now subscribers that the online TV platform is changing its brand name to AT&T TV Now.

The telecom giant, whose WarnerMedia subsidiary is in the process of rolling out the HBO Max subscription streaming video service, is attempting to rejuvenate DirecTV Now, which continues to lose subscribers who signed up for the initial loss-leading $34.99 monthly fee. That fee has been upgraded to $39.99.

“In the coming weeks, the AT&T TV app will be available for download across various app stores, and current DirecTV Now customers will see this update automatically on their devices,” AT&T said in a statement. “We’ll share more details on this rollout when it begins.”

AT&T acquired El Segundo Calif.-based satellite operator DirecTV in 2014 for $48.5 billion. It acquired Time Warner in 2016 for $84.5 billion.

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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.

AT&T Re-Evaluating Focus on DirecTV Now

Less than three months after disclosing DirecTV Now lost 83,000 subscribers in the most-recent fiscal quarter, corporate parent AT&T appears to be re-adjusting its focus on the much-ballyhooed online TV service.

Launched in 2016, DirecTV Now ended the first quarter with about 1.5 million subscribers — many of them attracted by the service’s initial $34.99 monthly fee — a win for consumers but unsustainable to the bottom line.

Earlier this year, AT&T rolled out two new subscription plans ranging from $50 to $70 monthly. It also operates Watch Now, a mobile-only streaming service.

David Christopher

Speaking June 19 at the Bank of America/Merrill Lynch Telecom & Media Conference in London, David Christopher, president of AT&T Mobility and Entertainment, said DirecTV Now would be downsized to a “thin” service targeting the telecom’s 170 million mobile connections.

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“We have emphasized it slightly less than we did when it first launched because we are focused more on other elements of the portfolio,” Christopher said.

Those elements include a pending $15 WarnerMedia branded service with HBO and Warner Bros. central assets to the streaming platform.

“Our job is to make the media company more valuable,” Christopher said, adding that he thinks the WarnerMedia SVOD service can “get to tens of millions” of subscribers in the U.S. “in short order.”

“It’s a big opportunity for distribution. It’s a big opportunity for advertising,” Christopher said. “That SVOD product fits into our distribution product line of video very well.”

He said AT&T doesn’t currently have a standalone “SVOD product,” at a time when the executive contends a one-size-fits all approach to over-the-top video distribution isn’t working.

Indeed, with increasingly fragmented consumer segments in the media landscape, AT&T believes an SVOD service targeting aficionados of movies and premium TV shows can generate significant market share.

“Premiere content at a great value is always going to find a place [in the market],” Christopher said.

When asked about declining video subscribers, Christopher downplayed the economic impact, saying video accounts for just 7% of AT&T’s total revenue.

“You have to understand that relative weight,” he said, adding that the company is “working through” 1.6 million subscribers with two-year, loss-leader plans it believes will disappear by the end of the year.

“That’s a big relief for us,” Christopher said. “We are cleaning up our customer base.”

Discovery Joins FuboTV

Online TV service FuboTV continues to transition from its original soccer roots.

The service June 18 announced a new, multiyear carriage agreement with Discovery, bringing 13 networks to the live-TV streaming service in the coming weeks.

The deal extends the previous pact between the companies that began with the former Scripps Networks Interactive (acquired by Discovery) and included carriage of their five networks, including HGTV and Food Network.

“This agreement further exemplifies the viewer affinity for our beloved brands and talent, and fuboTV’s commitment to offering high-quality, world-class content to customers,” Eric Phillips, president of affiliate distribution at Discovery, said in a statement.

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Discovery Channel, TLC, Investigation Discovery, Animal Planet, OWN: Oprah Winfrey Network and MotorTrend will be available on the streaming service’s base package, fubo Standard, joining HGTV, Food Network and Travel Channel, which are already available on the service.

At the same time, an expanded suite of Discovery networks, including Science Channel, Destination America, Discovery Family, American Heroes Channel, and Discovery Life, will be added to fuboTV’s add-on package, fubo Extra ($5.99/month for 30+ channels) joining DIY Network and Cooking Channel.

Additionally, Discovery en Español and Discovery Familia will be available on fuboTV’s Spanish-language package, fubo Latino ($24.99/month for 20 channels), and the Latino Plus add-on package ($7.99/month for 15 channels).

In addition to bringing subscribers each network’s live linear feed, the agreement also includes a library of on-demand Discovery content, bringing fuboTV’s VOD library to over 60,000 movies and TV episodes per month.

“We are excited to be adding more Discovery brands alongside their lifestyle networks, which we already carry,” said Joel Armijo, CFO, fuboTV. “These brands, including HGTV and Food Network, are among our top performing entertainment networks, and this agreement allows us to extend our partnership for years to come. We expect to be similarly successful with our new Discovery networks.”

Video Streaming Widens Appeal Over Pay-TV Among Telecom Customers

Video streaming expanded its lead over subscription TV service in terms of customer satisfaction, rising to a score of 76 on the American Customer Satisfaction Index’s 100-point scale.

According to the ACSI Telecommunications Report 2018-2019, subscription TV service stagnated at 62, tied with internet service providers for last place among all industries tracked by the ACSI — subscription TV, ISPs, fixed-line telephone service, video-on-demand service and video streaming service.

Video streaming topped all industries tracked.

“Video streaming once again proves itself to be the best of the telecom industries in customer satisfaction,” said David VanAmburg, managing director at the ACSI. “Traditional telecom providers have tried to step up their game, but they’re not providing original content the way video streaming is, and in part they suffer guilt by association — if customers aren’t satisfied overall with Comcast, they’re probably going to ding Comcast’s on-demand service too.”

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Among video streaming services, Netflix secured first place at 79 after sharing the lead with Sony’s PlayStation Vue and Amazon Twitch the previous year. Netflix ranked at the top for original content among all streaming services, according to the ACSI. Sony’s PlayStation Vue landed in second place at 78, followed by the Microsoft Store at 77. Hulu stepped up to match Amazon Prime Video and Apple iTunes at 76. Five services clustered at 75: CBS All Access, Google Play, Amazon’s gaming platform Twitch, Walmart’s Vudu and Google’s YouTube. Dish Network’s Sling TV was the most improved, meeting HBO at 74. Starz matched the combined score of smaller platforms at 72, while Showtime followed close behind at 71. AT&T’s DirecTV Now fell to 69, ahead of only Sony Crackle, which remained unchanged at 68.

For the past six years, customer satisfaction with subscription TV has languished in the mid-to-low 60s, according to the study. AT&T’s U-verse TV held the lead for subscription TV at 69, followed by Verizon’s Fios at 68 and Dish Network at 67. AT&T’s satellite TV service DirecTV came in at 66, Altice’s Optimum tallied 61, and Charter’s Spectrum came in at 59 to tie with Cox Communications. Frontier Communications and Comcast’s Xfinity came in at 57. Mediacom followed closely at 56. Altice’s Suddenlink tumbles to the bottom of the category at 55.

Customer satisfaction with video-on-demand service slipped to an ACSI score of 67 as viewers continue to turn toward streaming services such as Netflix and Hulu, according to the study. AT&T’s U-verse TV service held the lead a year ago, but this year shared the top spot with Verizon’s Fios at a score of 72. Satellite provider Dish Network dropped to 71 but remained just ahead of DirecTV, unchanged at 70. Frontier Communications debuted in the category with a score of 67, in line with the industry average. Three decliners met at 66: Cox Communications, Altice’s Optimum and Comcast’s Xfinity. Charter’s Spectrum remains unchanged at the bottom of the category with a 64.

Unchanged at a score of 62, ISPs remain at the bottom of the ACSI rankings. Most ISPs are still falling short of providing good service at an affordable price, according to the ACSI release. Verizon’s Fios was stable at the top of the category with an ACSI score of 70, but AT&T Internet closed in at 69. Altice’s Optimum fell to 63 but remained the leader among coaxial providers. Meanwhile, Comcast’s Xfinity inched closer to the industry average at 61. Cox Communications tallied 60, tying Altice’s Suddenlink. Charter’s Spectrum and CenturyLink came in at 59.