Grade: B -
AT&T lost 351,000 linear pay-TV customers in the second quarter, replacing some of them with 152,000 new users for virtual platform DirecTV Now.
More than half of those new DirecTV Now subscribers were linear pay-TV refugees—mostly from other operators’ services, company executives assured investors, who were understandably skeptical as to whether AT&T’s vMPVD service is cannibalizing its own U-verse and DirecTV satellite offerings.
Certainly, with the most popular DirecTV Now tier running $35 a month, investment analysts aren’t excited about the margins involved in a migration to the virtual service.
"By our estimate, DirecTV Now's $35 Live-a-Little package carries roughly $30 in programming costs. Selling $10-per-month subscriptions may help results in the wireless segment(s), but it won't help in Entertainment. Nor will selling HBO for $5 per month help Time Warner,” said MoffettNathanson analyst Craig Moffett.
For their part, AT&T executives emphasized the benefits of bundling pay-TV service with other products, like wireless—benefits that transcend margin, they said.
“The number of wireless subscribers who also have a TV service from us has increased by more than 4 million, or up 31%, since the close of the DTV deal. Conversely, TV subscribers with wireless plans have increased by nearly 1 million, or 18%. And the number of TV subscribers in our footprint with high-speed Internet service has increased by 10%,” boasted AT&T CFO John Stephens on the carrier’s quarterly conference call with analysts, according to a Seeking Alpha transcript of the event.
The problem with that strategy is that AT&T is losing pay-TV customers to pair with wireless. U-verse, of course, is the fastest-deteriorating asset in the industry, having lost nearly 1.8 million customers in the last six quarters. The DirecTV satellite platform, meanwhile, is spinning its wheels, shedding 156,000 customers in the second quarter and winding up with a base that’s essentially flat with where it was at a year ago.
AT&T said its virtual platform now has 500,000 users, but that growth isn’t enough to keep pace with the attrition on the linear platform.
AT&T does get credit for DirecTV’s user interface, which is one of the more popular in the pay-TV ecosystem. AT&T is about to enhance its UX further with a unified platform rollout, which is already in beta.