Between Directv, U-verse TV, and the carrier’s streaming DirectvNow service, AT&T pay-TV subscriber losses amounted to 946K in 2Q19, just shy of 1 million. Satellite delivered Directv lost 778K subscribers alone.
If you add AT&T’s 627K pay-TV subscriber losses in 1Q19, the carrier has lost over 1.5 million pay-TV subscribers in all of 2019 thus far. Even once high flying DirectvNow, the broadband delivered vMVPD service, lost 168K subscribers in 2Q19, and 251K for the year so far. AT&T now counts a total of 22.9 million pay-TV subscribers, with 1.3 million of those through DirectvNow.
Despite these losses, AT&T does not appear to be panicking. Executives cite a long-term customer value approach, suggesting most current subscriber losses are lower-value customers, and the company’s focus is shifting to so-called higher-value video customers. They expect these video losses to continue, especially as 1 million or more Directv customers are coming to the end of a two-year contract by the end of 2019.
“One has to ask how is it that subscribers can decline like this and margins expand, and it says a lot about the customers that are staying on the network, that they tend to be very high-value customers, tend to be very valuable customers,” said AT&T Chairman and CEO Randall Stephenson on today’s earnings conference call. “As you think about where we’re going as a company, and that is distributing unique content to as many distribution points as possible.”
Evolving Video Strategy
Company executives outline an evolving video strategy that includes the pending launch of AT&T TV and the HBO Max streaming SVOD service to address this rapidly changing pay-TV marketplace.
Executives also point to video ARPU growth and overall growth in the conglomerate’s Entertainment Group business unit, which includes broadband and pay-TV. That unit saw 2Q19 EBITDA of $2.9 billion, on revenues of $11.4 billion, driven in large part by the broadband performance.
AT&T added 318K fiber broadband subscribers and now counts 3.4 million fiber broadband subscribers. Fiber broadband now passes approximately 14 million locations. Some basic ’back of the napkin’ math suggest AT&T sees about 24% penetration for its fiber broadband.
As to its shifting video strategy, AT&T TV is the new broadband delivered pay-TV service to a thin-client Android-powered STB, code-named Osprey. This is basically a new delivery method for Directv, broadband delivery, rather than satellite. This approach cuts customer acquisition costs in half, AT&T says, allowing them to extract better margins for pay-TV.
“AT&T TV, you should assume this will be the workhorse over the next couple years and we will put our shoulder and our muscle behind AT&T TV, get a lower price point, shore up this customer base over the next couple of years,” said Stephenson.
HBO Max will be a Netflix style SVOD service featuring HBO content, as well as TV shows, movies, and other exclusive content. AT&T also announced an HBO Max media and analyst day for October 29 on the Warner Bros. lot in Burbank, California.
“We like how the video portfolio is shaping up here,” said Stephenson “You can begin to appreciate where you would expect our marketing and customer acquisition muscle to go.”