By Melissa Repko / The Dallas Morning News
DALLAS — As more customers cut their cable and turn to streaming services, AT&T says it expects to lose about 390,000 traditional pay-TV subscribers this quarter, according to financial documents filed with the Securities and Exchange Commission.
That would mark an accelerated decline from the second quarter, when AT&T lost 351,000 pay-TV subscribers.
In the filing, however, the Dallas-based telecom company pointed to a silver lining. It said it’s stemmed losses with its own cable alternative: online streaming service DirecTV Now. AT&T anticipates that DirecTV Now will gain nearly 300,000 new customers during the third quarter, which would cut the company’s video net losses to 90,000.
AT&T attributed the decline in video subscriptions to increased competition from both traditional pay-TV providers and streaming services, hurricanes, and its stricter credit standards, according to the SEC filing.
The decline of cable has hit all pay-TV companies. AT&T became the largest pay-TV provider in the country when it acquired DirecTV in 2015. It has two pay-TV services: DirecTV and U-Verse.
Last fall, it debuted its first online streaming service, DirecTV Now. AT&T’s entertainment chief, John Stankey, describes the service as a way to appeal to customers who don’t want a cable bill, such as apartment dwellers, 20- and 30-somethings, and price-conscious households. DirecTV Now does not require a contract. Instead, it has a monthly subscription fee similar to Netflix but with a more cable-like channel lineup.
As of late July, AT&T said DirecTV Now had attracted nearly half a million subscribers. Prices start at $35 per month.
Roger Entner, founder and lead analyst of Recon Analytics, said DirecTV Now may have thinner margins than cable or satellite, but it costs AT&T less and taps into a new customer base. There are fewer upfront costs for the company, such as putting a dish on the roof. And the service may ultimately inspire customers to tack on other AT&T products, he said.
“If we look 10 years from now, DirecTV Now is the future,” he said. “You can get out of the hardware business. The service becomes perfectly movable with the consumer. It doesn’t matter if they want to watch their content on a big screen TV or a tablet or a phone. It just walks with them.”
He said the recent drop in AT&T video subscribers underscores the fragmentation of the entertainment landscape. Instead of turning to a single company for cable, customers often sign up for multiple online video services like Hulu, Amazon and Netflix. But, he said, that doesn’t mean they’re always paying less.
“They are getting 10 bills that are smaller but are spending more,” he said. “Your sticker shock goes away but you get nickel-and-dimed to death.”
Along with DirecTV Now, AT&T has also sought to slow the cable exodus with competitive prices for bundled services, such as cable and internet. It’s also chasing new streams of revenue with the pending acquisition of media and entertainment company Time Warner. The deal is valued at $108.7 billion, including debt.
With Time Warner, AT&T would become owner of HBO, CNN and Warner Bros. Studios and other valuable TV and movie content. As a content owner and distributor, company officials say they’ll collect data that can be used for new approaches to targeted advertising.
AT&T’s third-quarter earnings call is Oct. 24. AT&T CEO Randall Stephenson said he expects the Time Warner deal to close by end of year.
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