AT&T's pay-TV business hit rock bottom in Q3 2019 as the company lost a whopping 1.35 million total video subs in the period.
That Q3 loss included 1.16 million "Premium" pay-TV subs (DirecTV satellite and U-verse IPTV) alongside 195,000 OTT-TV (AT&T TV Now) customers. AT&T ended Q3 with 21.56 million total pay-TV connections/subs (20.41 million Premium TV subs and 1.14 million OTT-TV subs), down from 25.15 million a year ago.
The severity of pay-TV losses in Q3 was fueled in part by customers who fled in the midst of various programming blackouts. In addition, many subs rolled off two-year price locks and other steeply discounted promotions.
Update: DirecTV lost about 5.4% of its sub base in Q3, which equates to an annual rate of decline of about 20%. "Good heavens," Craig Moffett, analyst with MoffettNathanson exclaimed in a research note issued Monday. "The revenue base at DirecTV will be hideously depleted by the time the page of the calendar turns."
And the company's OTT-delivered option of AT&T TV Now (formerly branded as DirecTV Now) isn't helping. That service, "once viewed as a lifeline…is just another contributor to the decline," Moffett added.
AT&T hopes the worst is behind it as the company prepares to broadly launch a new, lower-cost streaming product/platform called AT&T TV, and as it nears the commercial launch of HBO Max, a new subscription VoD product that will eventually tack on live streaming capabilities.
"In terms of the video losses, particularly around [our] satellite product, third quarter is the peak," Randall Stephenson, AT&T's CEO, said on Monday's Q3 call. There will be some additional video customer clean-up in Q4, but the losses will be "significantly improved and get better as we move into next year," he added.
AT&T TV, an OTT service that uses an operator-supplied Android TV box and is being tested in a handful of US markets, will become the company's "primary vehicle for going to market [for pay-TV], pairing it with our fiber product and our broadband product," Stephenson said. "This [AT&T TV] allows us to get another product in the marketplace at a lower price point, lower cost point, good margins."
HBO Max, meanwhile, will evolve to become "the workhorse for our video product as we move into next year," he added.
WarnerMedia is set to offer more detail about HBO Max, including launch timeframes and pricing, on Tuesday afternoon. Although HBO Max is set to launch amid other new SVoD services from Disney (Disney+), Apple (Apple TV+) and even NBCUniversal (Peacock), Stephenson reiterated his stance that AT&T's new SVoD product will be able to differentiate in this increasingly crowded direct-to-consumer streaming video market.
"This is a unique product…This is not Netflix. This is not Disney," Stephenson promised, noting that AT&T expects HBO Max to amass 50 million domestic subscribers over the next five years.
Update: Still, AT&T "appears boxed-in" by Disney's $6.99 per month price for Disney+ and by Verizon's decision to offer a year of Disney+ for free to qualified mobile subs on unlimited plans and to new Verizon home broadband customers (Fios and 5G Home). "At $15/month or higher, HBO Max risks being overpriced for anyone other than existing subscribers, and if they give HBO Max away for free to wireless subscribers to parry Verizon, they will cannibalize even that (and risk implicitly positioning HBO Max as being 'worth' about the same as Disney+ at the same time)," Moffett explained.
Broadband also struggles in Q3
Video losses in Q3 also impacted AT&T's broadband business, particularly among bundled customers. AT&T lost 119,000 total broadband connections in the period (including losses of 83,000 overall "IP" broadband subs and 36,000 DSL customers), ending the period with 14.44 million. On the positive side, AT&T added 318,000 fiber broadband connections in Q3, but that gain wasn't enoiugh to offset huge, unspecified sub losses on its U-verse platform.
'No sacred cows' as AT&T portfolio is reviewed
Stephenson noted that the AT&T exec team has been instructed to start the next review of the company's portfolio as it looks to possibly prune pieces that don't contribute to AT&T's core strategy.
"Let me be clear, we have no sacred cows" in this process, Stephenson said, noting that AT&T will look at the situation with "fresh eyes" and consider potential partnerships.
Pressure from activist shareholder Elliott Management has sparked speculation that AT&T might look to sell or spin out its struggling DirecTV unit. AT&T has since said it has no plans to sell DirecTV.
"We're always open to making portfolio moves and DirecTV has been the source of a lot of public speculation in that regard," Stephenson said. "As we've said, it [DirecTV] will be an important piece of our strategy over the next three years."
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— Jeff Baumgartner, Senior Editor, Light Reading