It was not a pretty picture for AT&T's Entertainment Group in the first quarter. While DirecTV subscriber numbers were flat compared to Q4, AT&T lost 233,000 U-verse video subscribers, causing the company to drop to 25 million total video customers.
Total, that is, as long as you're not counting DirecTV Now. AT&T Inc. (NYSE: T) claims the new over-the-top video service continues to draw new subscribers (albeit much less valuable ones than its satellite TV offering), but the company wouldn't share any specifics about what those numbers look like. In January, AT&T said it had gained 200,000 customers in the first month after DirecTV Now's launch, but no details on further growth have been forthcoming. (See AT&T Swears by DirecTV Now .)
What's particularly interesting about AT&T's earnings report, however, is how executives are characterizing the future of the company's video business. First, CEO Randall Stephenson is adamant that churn among video subscribers is happening in places where AT&T isn't bundling a video offering with broadband or mobile service; a weakness the telco plans to correct. That focus on bundled sales mirrors the strategy of cable competitor Comcast Corp. (Nasdaq: CMCSA, CMCSK), which recently introduced a mobile service, but only for customers who also buy video and/or fixed broadband subscriptions.
Second, Stephenson is optimistic about new video revenue opportunities that he believes will accrue both from the company's proposed acquisition of Time Warner Inc. (NYSE: TWX) and regulatory rollbacks that the Federal Communications Commission (FCC) is pursuing. For example, Stephenson cites the ability for AT&T to leverage customers' behavioral data to deliver high-value addressable ads within Time Warner programming. Where AT&T is already doing addressable advertising -- and its ad division is currently a $1.5 billion business -- Stephenson says that the company is recording revenues per impression that are three to four times the value of a traditional ad.
"As we bring Time Warner into the family at AT&T," noted Stephenson on the company's earnings call, "we are convinced that we can really enhance Time Warner's advertising revenue streams by virtue of some of the customer data, the viewership data that we have on the distribution side of the house."
Naturally, AT&T has to close on the Time Warner acquisition before it can realize any new revenue, but the FCC has already dismissed broadband privacy regulations that would have made it more difficult for the company to track and assess users' online habits. (See Welcome to the Wild West of Privacy.)
AT&T still believes it will complete its acquisition of Time Warner this year, although the U.S. Department of Justice has not yet weighed in on the transaction.
On the fixed broadband side of AT&T's business, the first quarter looked significantly brighter. The telco gained 115,000 new broadband subscribers in Q1, canceling out DSL losses with 242,000 new "IP broadband" customer additions. AT&T also continued to expand the reach of its fiber-to-the-home infrastructure, reporting that 4.6 million customer locations are now within range of AT&T Fiber service. The company plans to extend FTTH service availability to a further 2 million locations by the end of the year.
Stephenson is also hyping the idea that AT&T will be able to compete more effectively with cable companies in the near future by complementing its fiber-to-the-home services with fixed wireless offerings in non-FTTH areas. In the short term, the operator is using CAF-II funding to deploy fixed-wireless broadband services with speeds of around 10-15 Mbit/s. In the longer term, it's looking to gigabit-speed 5G services to act as a fixed-line alternative to cable offerings. (See also AT&T's Gig Economy Driven by Spectrum Obsession in 2017.)
"It's about to be a new competitive game as we get into the world of 5G," said Stephenson on the company's earnings call.
For now, AT&T's Entertainment Group, which includes both its video and non-mobile broadband services, is holding steady. Total revenues for the Entertainment Group in Q1 were $12.6 billion, just slightly under the $12.7 billion the division brought in a year ago. EBITDA margins were also roughly flat, coming in at 23.9% for the quarter compared to 24.3% in Q1 of 2016.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading