Just 36 hours after announcing its proposal to buy Time Warner Inc. for $85 billion, AT&T said it added 323,000 customers in the third quarter to its DirecTV platform, which it described as a centerpiece to the aggressive content play.
AT&T said it has grown DirecTV by 1.2 million users since taking over the platform in August of last year. Company executives, meanwhile, said their conviction has grown further that the virtualized DirecTV Now platform – set to launch later in the fourth quarter – will drive its future in the realm of video distribution. And it needs its own content arm to innovate DirecTV Now into the leading service it wants it to become.
Randall Stephenson, CEO of AT&T, said the process of signing content deals with Time Warner, NBCUniversal, Disney and others for the over-the-top DirecTV Now platform has been “heavy lifting.” Owning a content engine like Time Warner Inc., he said, will make the process of creating innovative services like DirecTV Now easier.
“The more we iterate and work on DirecTV Now, the more we get excited,” Stephenson said. “We think about what else we can do on this platform, such as incorporating social – the ability to clip content you’re watching and share it with your friends. We’re trying to develop those types of products with content providers, but it’s really hard to get these innovations on content done.”
With AT&T owning Time Warner as a wholly owned subsidiary, “we can innovate our content much faster,” said Stephenson, adding that other content providers will fall in line once this happens.
For his part, Time Warner CEO Jeff Bewkes said his company has long sought the kind of rich VOD experience for its Turner Networks channels that’s currently being provided only by Comcast’s X1 platform. The process of ubiquitous VOD access has been slow to evolve, mainly due to content rights issues and the “arms-length” partnership between programmers and distributors.
“We want to bring more packages and more choices at different price points,” said Bewkes, sitting in Monday alongside AT&T execs during their earnings call. “We want to provide more innovation with more advertising capabilities. We can make the advertising experience more interesting for the consumer versus the one next door. And the more of the cost of programing that’s bore by advertising, the more consumers get a break.”
Bewkes was asked why Time Warner felt it was important to align with a distributor like AT&T now, when the company divested Time Warner Cable back in 2009. TWC, he said, was just a regional cable company covering about 12 percent of the country at the time. And the business of video distribution has since changed.
“The world’s much different now,” Bewkes said. “You have things like net neutrality and mobile which is much bigger. You have a lot of incoming new competition from Facebook, Netflix, Google and Amazon. And as the distribution world changes, it’s important to have distribution platforms to foster innovation on mobile sets and in broadband, and the ability to have two-way communication with consumers and more targeted advertising.”
Stephenson said the deal is timed well, with much of the integration of DirecTV set to be completed by the time the Time Warner deal is expected to close late next year.
“The timing of deal as it relates to the integration of DirecTV is very good fit,” he said.
As AT&T sets down a path of vertical integration focused on digital distribution of video content on DirecTV-branded OTT platforms, it’s leaving some of its legacy platforms behind. AT&T U-verse, for example, continues to shrink away, losing another 326,000 customers in the third quarter.
AT&T conceded that the diminishment of U-verse will likely offset the growth of DirecTV in 2016, resulting in a net loss of video customers.
Revenue for AT&T’s Entertainment Group increased by 1 percent in the quarter to $12.7 billion.