The video subscriber losses just keep piling up for AT&T, which just posted its worst quarter yet on the pay-TV front.
While still marginally the largest pay-TV provider in the US, AT&T reported losing a whopping 946,000 video customers in the second quarter, including 778,000 legacy "premium" TV subs (DirecTV and U-verse TV) and 168,000 OTT video subs (DirecTV Now). The company ended June with 22.92 million US TV subs -- 21.58 million among the premium satellite TV/IPTV group and 1.34 million on the OTT side.
Yet, even as AT&T's pay-TV subscribers fled the provider in record numbers over the spring, the company’s video entertainment group revenues just dipped slightly, slipping less than 1% to $11.4 billion. Meanwhile, the entertainment group's operating income actually climbed 2.6% to approximately $1.51 billion, thanks largely to strong performances by its WarnerMedia segment and AT&T Fiber unit and price hikes for its pay-TV packages.
On their earnings call Wednesday morning, AT&T executives acknowledged the heavy pay-TV subscriber losses and signaled that there will likely be more to come over the rest of the year as two-year promotional deals for another 1 million video customers expire in November. But they shrugged off the hefty sub losses as part of their overall strategy to build a base of long-term "high-value" video customers.
"We'd expect the level of losses to continue" through the rest of the year, said AT&T CFO John Stephens. "We need to get through those 1 million customers... We're going to continue to focus on long-term value for the customer."
AT&T officials are also pinning their hopes on two new video services coming down the pike—a lower-cost "thin-client," OTT-delivered service called AT&T TV and a direct-to-consumer subscription VoD offering named HBO Max. With both services now in the works, officials argued that the two will usher in a fresh wave of video growth for the company.
While details about both new services are still scarce, the company did disclose that a beta version of the new AT&T TV streaming service, which will be based on an Android TV-powered box, will launch in several undisclosed test markets by the end of September. Plans call for rolling it out commercially shortly thereafter and building it into AT&T's main pay-TV service, eventually replacing the legacy DirecTV satellite service.
"You can assume that it'll be the workhorse over the next couple of years," said AT&T Chairman & CEO Randall Stephenson, noting that the thin-client service should slash the company's customer acquisition costs in half. "We're just going to put our shoulder and muscle into it."
As for HBO Max, AT&T is counting on this new supercharged streaming version of HBO to make big waves in the SVOD market when it launches next spring. Company executives argue that it will drive both pay-TV and wireless growth.
"We'll have a customer base that will be perfectly suited for HBO Max," Stephenson declared. "The DirecTV base will be ideally suited for it."
Wall Street analysts aren't so sanguine about this strategy. In a fresh research note issued this morning, MoffettNathanson took a dim view of AT&T's latest video results and approach. "Today’s premium video subscriber loss perhaps wasn’t quite as bad as the most horrific whisper numbers, but, at a decline rate that has now reached 8.7% YoY (yikes!) that only tells you how dismal expectations have become for a business that is inarguably in inexorable decline," wrote Craig Moffett, a principal analyst at MoffettNathanson.
Moffett also questioned the company's new focus on AT&T TV and HBO Max, after previously pinning its video hopes on DirecTV Now. "There was a time when AT&T pointed to their DirecTV Now OTT service as the way out of the DirecTV tar pit," he wrote. "More recently, however, DirecTV Now has been just another contributor to the decline."
On the broadband end of the business, AT&T reported netting 318,000 fiber broadband subscribers, boosting its total to 3.4 million. But it lost just as many U-verse broadband subscribers plus another 34,000 DSL subs, leading to a net loss of 34,000 data customers for the quarter. We'll have more on AT&T's broadband results in a separate story on our sister site, Broadband World News, later today.
— Alan Breznick, Cable/Video Practice Leader, Light Reading