July 19, 2021
DirecTV's net subscriber losses have slowed down over the past year and are now trending a bit better than Wall Street expected as its owner, AT&T, prepares to spin off its pay-TV businesses as a separate company.
In a short note to investors Friday, New Street Research reported that DirecTV registered a decline of 473,000 satellite TV subscribers in Q2 2021, improving from a much bigger drop of 887,000 subscribers a year ago. That beat New Street's estimate of a 529,000 sub falloff in the second quarter as well as the consensus forecast of a 508,000 sub drop for the quarter.
In his note, New Street analyst Jonathan Chaplin said the improvement has been driven almost entirely by lower customer churn rates, not larger sub gains. He noted that gross subscriber adds climbed only 2% over the course of the year, but monthly customer churn fell from 2.42% in the year-ago quarter to 1.87% in Q2.
Chaplin wrote that while the results show DirecTV's sub count is still declining rapidly (with subs down 13% on a year-over-year basis), "the steepest declines may be in the rear-view mirror." He noted that the No. 1 US satellite TV provider saw its subscriber count fall by 15% in both 2019 and 2020.
At the same time, though, the New Street analyst observed that "DTV's churn remained elevated through the worst of the lockdowns" even as the overall pay-TV industry saw customer churn numbers decline during the first year of the pandemic. This occurred, he added, "as DTV worked through poor pricing decisions from the past."
AT&T shed 617,000 "premium" TV subscribers (DirecTV satellite and U-verse IPTV) in Q4 2020. It then lost another 620,000 premium TV connections in Q1, cutting its grand total of pay-TV subs to 15.88 million, down 14% from the year-ago period.
Chaplin argued that "it remains to be seen" whether DirecTV's churn rate will continue to improve this year. "Perhaps the subs with a high propensity to churn have now been worked through, or perhaps churn will tick back up with the industry," he wrote. "When we look at the performance gap between Dish and DTV, it seems that DTV could still improve a good deal further. It will come down to execution."
The analyst noted that when AT&T agreed to sell a 30% stake in "New DirecTV" (the DirecTV satellite TV business, AT&T's U-verse IPTV unit and the newer AT&T TV streaming video service) to TPG Capital earlier this year, it did not assign any value to the new entity's common equity. However, he continued, "if the new management team can engineer the kind of stabilization that Dish has seen, then there is more likely to be cash flow and value available to the common equity holders towards the end of the forecast period."
Yet, Chaplin contended, AT&T would still do better by striking a DirecTV merger deal with rival Dish, even though it might well stir antitrust concerns for US government regulars. "The industrial logic for the [Dish] deal has never been stronger, but the deal may receive more scrutiny than we have assumed, given recent comments from the [Biden] administration," he concluded.
— Alan Breznick, Cable/Video Practice Leader, Light Reading
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