AT&T adds 312K DirecTV Now users in Q1, drops 187K linear customers as ‘transition’ continues

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AT&T reported the addition of 312,000 users to its virtual pay TV platform, DirecTV Now, in the first quarter, with the company now describing its video business in full transition from satellite and IPTV to OTT. 

AT&T said it gained a total of 125,000 pay TV users in the quarter, meaning linear losses totaled around 187,000 across DirecTV satellite TV and AT&T U-verse. 

AT&T’s video base has remained flat with the end of the first quarter of 2017 at 25.4 million, but virtual DirecTV Now customers accounted for 1.5 million of that base at the end of March versus just 300,000 a year prior. 

AT&T’s pay TV user base is also largely flat with two years ago, when it stood at 25.3 million at the end of March 2016. 

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“We actually have more subscribers today than we did two years ago because of the success of DirecTV Now,” said AT&T CFO John Stephens in today’s first-quarter earnings call. 

Stephens conceded that AT&T will continue to struggle with “margin pressure,” as it trades out much more profitable linear customers for the lesser average revenue per user of its OTT DirecTV Now platform. However, he expressed confidence that the upcoming upgrade to the new DirecTV Now user platform will lead to the “replacement of revenues” lost in the ongoing transition to OTT. 

“We continue to see challenges in the linear model, and see opportunity in DirecTV Now,” Stephens said. “With the new platform, you’ll start seeing things like cloud DVR revenues, and pay-per-view revenue, both spots and movies. And eventually you’ll see revenue driven from adverting and data insights. This transition will be challenging. And it will take time.”

Bundling this new video business with wireless is “the real strength and what makes it all worth it,” Stephens added. 

Notably, AT&T said that revenue for its advanced advertising unit, AdWorks, was up 9% in the quarter. 

"Our [advanced advertising] base is around $350 million a quarter, and we grew it around 9%," Stephens said. "The team is actually proving that this works already, with our excising inventory of ads we get from the content folks. … As we go though this year, hope to add a lot more inventory, through our umbrella of companies. Think about the overall digital advertising market in the U.S. north of $60 billion. We’re not in that piece a significant player, but we believe we can be."

Overall revenue performance: Across all operating divisions, AT&T reported revenue of $38 billion for the first quarter, compared to $39.4 billion in the first quarter of 2017. AT&T did say that its revenue was $38.9 billion, discounting use of a new accounting method. 

The company said that market conditions, including currency exchange factors, caused it to scuttle a planned IPO for its Latin American business. “We just didn’t think it was time to act,” Stephens said. 

Wireline broadband: AT&T added 82,000 wireline broadband users in the first quarter, versus 90,000 in the year-ago quarter.

Meanwhile, Stephens only briefly touched on the ongoing court fight with the U.S. Justice Department, which is trying to stop AT&T’s $85.4 billion purchase of Time Warner Inc. The trial ends on April 30, he noted. 

“After that, we’ll wait for the court’s decision,” Stephens said. “There’s not much more we can add to that point.”