Count Macquarie analyst Amy Yong as a believer in AT&T’s claim that new features and advanced advertising will enable the company to grow the margins of its virtual pay TV platform DirecTV Now.
In fact, in a note to investors this morning, Yong predicted DirecTV will exit 2018 with “stable margins.”
Yong posited that with aggressive promotions, AT&T will report gains of 352,000 DirecTV Now subscribers in the second quarter and pick up 1.1 million for all of 2018.
In its first-quarter earnings call last month, AT&T CEO John Stephens said the rollout of the new DirecTV Now 2.0 platform will enable new monetization features including cloud DVR and pay-per-view—an assertion Yong seems to agree with.
Stephens also spoke at length regarding the advanced advertising potential of not just DirecTV Now, but also the premium OTT-based pay TV service that AT&T will launch in the fourth quarter.
Yong said AT&T has a “sizable opportunity” to monetize 200 billion impressions annually with programmatic advertising—a bounty that will be “compounded” by the addition of 750 billion Turner Networks impressions, should AT&T be able to close the Time Warner Inc. acquisition.
“We expect [AT&T] could compete with Google and Facebook in a $100 billion U.S. digital ad market,” she wrote.
For his part, Stephens stated AT&T’s goals a little more modestly last month.
“I think last year, the overall digital advertising market in the U.S. was north of $60 billion, and some estimates will get it in the $80 billion range,” he said. “We’re not what I would call in that piece a significant player. We believe that we can be. We have the capabilities to be.”
While touting their robust subscriber growth, operators of virtual pay TV platforms have been met with a collective “meh” from investors, who see the low-priced, low-margin skinny vMVPD bundles as poor replacements for fast declining linear video businesses. AT&T said it plans to transition its pay TV user base to the OTT model anyway, and the margins will come.
For the quarter, AT&T added 312,000 DirecTV Now customers while losing 187,000 customers across its linear DirecTV satellite and U-verse IPTV platforms. The virtual platform now accounts for about 17% of AT&T’s 25.4 million pay TV customers, up from just 1% a year ago.
“Transitions such as this are never easy, but we have shown that we're able to do this time and time again, whether it'd be with our voice or broadband or wireless services,” Stephens said. “We don't expect video to be any different. We do expect revenue and margin pressure as we manage through this, especially this year.”