Deeper Dive—Where AT&T, Charter and Comcast split on pay TV’s future

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The CEOs of AT&T, Charter and Comcast this week presented varying visions for the future of pay TV at their respective companies.

AT&T CEO John Stankey, Charter CEO Tom Rutledge and Comcast CEO Brian Roberts all faced questions about the video business at the Goldman Sachs Communacopia conference as the third quarter nears its end. It follows a second quarter where the country’s three biggest pay TV providers experienced both surprise video subscriber gains and continued video subscriber losses.

Here’s how all three interpreted the optimism, pessimism and realism surrounding the declining state of traditional MVPDs.

AT&T

Stankey said that pay TV is still an important product to AT&T and added that his company has “effectively” managed mature and legacy products like DirecTV and U-verse.

“That customer franchise still has value to us. We want to manage it carefully. We want to be thoughtful about that,” he said.

However, Stankey said the momentum right now is with broader distribution products like AT&T TV that can touch more households, have more relationships and provide more insights about customer behavior. He said that an SVOD/AVOD offer – which is what HBO Max will become next year – is a far more attractive place to be in the long haul as opposed to a traditional video service.

“…Clearly [traditional pay TV has] seen its peak and is working down the backside of the growth curve. And as a result of that, I will tell you we will be diligent managing the mature product. We will try to drive as many of those customers to software ways of doing business with us in the pay TV market and give them a natural glide path to some of our other entertainment-based products,” Stankey said.

Stankey wouldn’t confirm if AT&T is looking to sell DirecTV but did acknowledge that the noise around a possible divestiture is due to AT&T seeking out multiple viewpoints about how best to handle certain assets.

Comcast

Comcast isn’t seeing pay TV subscriber declines quite as steep as AT&T’s but they’re still substantial. However, Roberts said he’s getting close to a point where he’s “indifferent” to customers choosing between X1 and Flex, Comcast’s product for broadband-only subscribers.

“That way, we can think as a consumer thinks. So, that's one of the big pivots of Comcast the last decade is to really follow our customers' needs and try to anticipate them and be a company that meets them,” Roberts said.

Comcast said it now has 2 million Flex devices deployed. Perhaps more importantly, it’s already seeing substantial uptake for its ad-supported streaming service, Peacock, which has now reached 15 million sign-ups.

“So, if you're an Xfinity customer, whether you take video or you get free video as a Flex customer… video is very much part of our strategy and the DNA of the company. But we've got 10,000 hours of free content that's now the #2 most popular app for all of our Flex boxes. I think we're onto something pretty special there,” Roberts said, who added that Flex and Peacock together are resulting in improving EBITDA margins.

Colin Dixon, founder and chief analyst at nScreenMedia, reiterated that in a recent research note.

“The only real value of [AT&T and Comcast’s] MVPD businesses is in a bundle with broadband. Video still has undeniable stickiness when combined with broadband. However, both Comcast and AT&T now understand that video’s role in the bundle can be played by much cheaper online services, which do not come with huge programming costs,” Dixon wrote.

Charter

Charter outperformed in the second quarter and added video subscribers for the first time in more than two years, so the cable operator has reason to be at least cautiously optimistic about video.

Rutledge said there’s still margin left in the traditional video business but he acknowledged that keeping those margins requires continuous price increases to stay ahead of rising programming costs, which results in pricing people out of the category. He said there continues to be pressure on big, traditional video channel packages.

“In that environment, can we grow video? Should we grow video? I think as long as there’s some margin in that fat package for us, we should continue to grow it. We should continue to carry it so that our customer experience is fulfilled and we’re able to satisfy every need of every customer we might have,” Rutledge said.

He said that Charter’s traditional video margins are sustainable and that if broadband growth continues as such a rapid rate, it can continue to outpace declines in video to some extent.

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