AT&T is reevaluating its channel lineup for its virtual MVPD DirecTV Now as the company works to restart video revenue growth amid high programming costs.
AT&T CFO John Stephens said Wednesday during a third-quarter earnings call that the company is dealing with fast-growing programming costs by taking a fresh look at how it can align content costs with price.
“It’s also about what customers want, and many want smaller, value-based video packages,” Stephens said.
DirecTV Now currently offers four different pricing tiers. At the base, the service offers more than 65 channels for $40 per month, and at the high end it offers more than 125 channels for $75.
Separately, AT&T offers WatchTV, a $15 per month streaming service with more than 30 channels. The service is free to AT&T’s Unlimited & More wireless subscribers.
It’s unclear what type of pricing and channel lineup combinations AT&T might offer below its current DirecTV Now base package, and Stephens didn’t elaborate during Wednesday's call.
Stephens did say that DirecTV Now is being updated to increase its simplicity and further differentiate the service, and that the company has begun beta testing a new proprietary streaming service with plans to roll out trials in the first half of 2019.
“This will be a more measured rollout and, like our introduction of WatchTV, we expect this service to be EBITDA positive and over time it should lower our acquisition cost for our premium video service,” Stephens said.
The new streaming service, like WatchTV, will use the same platform as DirecTV Now.
Stephens also said that DirecTV Now will be scaling back its promotional efforts, particularly as they apply to “low-value, high-churn” customers.
John Donovan, CEO of Communications at AT&T, described DirecTV Now as a tale of two cities, with one side comprised mostly of consumers jumping from promotion to promotion and spinning between DirecTV Now and other competing vMVPDs.
“We’re after customers that are highly engaged,” said Donovan. “We want to secure that customer base.”
He said that the customer base that AT&T burned off in the third quarter is always available and that it’s very promotional and price sensitive.
The burn-off that Donovan mentioned may be referring to DirecTV Now’s quarter-over-quarter slowdown in net subscriber additions. During the third quarter, DirecTV Now added 49,000 subscribers, significantly lower than 342,000 the service added in the second quarter.