AT&T loses another million pay-TV subscribers, promises more modest losses soon

AT&T

AT&T says it will launch its new streaming service, HBO Max, in May, and claims that massive subscriber erosion its pay-TV service has seen in recent quarters will stabilize by the end of the year – to reflect the loss trend other pay-TV services are experiencing.

Ouch.

But, in its Q4 2019 earnings call with analysts today, the company said that before DirecTV subscriber losses moderate, it might see its worst subscriber losses of 2020 in Q1. Whether they’ll match the 995,000 subs it lost in Q4 and the whopping 1.3 million it lost in Q3 remains to be seen. Almost all of those losses, it claims, have been low-value subscribers that were on cut-rate deals, a group that has nearly been eliminated.

In addition to the pay-TV losses, AT&T also saw 219,000 AT&T TV NOW subscribers abandon ship.

Last quarter, the telco’s Chairman and CEO Randall Stephenson said Q3 would be the last significant quarter of losses for DirecTV, although he acknowledged there might be “a little more” erosion in Q4.

AT&T did stress that it had seen “solid video and broadband ARPU gains,” as well as 191,000 AT&T Fiber net adds, something it sees as crucial to its long-term growth.

AT&T sees 5G a bright spot, HBO Max as crucial

COO John Stankey said the next-gen 5G wireless rollout was ahead of schedule with 75% of its first net already deployed. It expects nationwide 5G deployment by the second quarter, which is critical because “we expect mobility will continue to be the biggest driver of revenue growth and profitability and be a key factor in meeting our 2020 goals.”

Stankey said “a successful launch of HBO Max is critical to our plans in each of the next three years,” adding that it continues to fine tune the streaming service’s go-to-market plan and will leverage its existing distribution networks to expand the current 10 million domestic customers HBO already has.

AT&T said HBO Max will have two-times as much content available as does HBO today. John Stephens, AT&T’s CFO, said the telco “made the strategic decision to give HBO Max exclusive streaming rights for top programs including Friends, Big Bang Theory and other popular shows. In the past, we would have sold these externally.”

That decision to offer it exclusively on HBO Max would make the streaming service stronger and more appealing, he said.

AT&T plans to leverage the 170 million existing customer relationships it has, as well as doing heavy promotion in its 5,500 retail stores to drive HBO Max as more 5G smartphones and devices become available at scale.

“The timing for this upgrade cycle couldn’t be more perfect when you consider that we’ll be offering HBO Max on our highest ARPU wireless plans with features tuned for premium media consumption and at a time when people are coming into our stores to upgrade,” Stankey said. “It’s a natural opportunity to further the distribution of HBO Max, while adding new mobility subscribers and improving our wireless ARPUs.”

Overall, he said, “We believe HBO Max will be the highest quality premium SVOD in the market with a great experience, better curation, and higher percentage of culturally relevant offerings than competing products.”

More unscripted programming to cut costs?

Noting that pay-TV was “working its way through the back end of a lifecycle,” Stankey said “the bulk of our profitability comes from three primary networks,” TNT, TBS, and CNN. “We all know that general entertainment content and the bundle is not performing as well; the nice part about our two general entertainment networks TNT and TBS, these are really hybrids. They’re a combination of general entertainment and sports.”

But, he pointed out, AT&T was moving aggressively with HBO Max because streaming represents “the growth platforms… that match general entertainment content (and) how consumers want to see them.”

The move, a pivot between what AT&T is doing with linear networks and what it’s doing with Max is a “key part of the WarnerMedia strategy.”

“It’s an important dance and choreography that we have to do to get that right,” he said.

AT&T will continue to invest in those linear networks, but a content shift will “start to occur a little bit.”

Subscribers “like news and sports,” he said, but “they also like content that’s socially relevant.” To meet that demand, both networks will start to see more unscripted content. “That will probably start to supplant hours,” he said. “It might have been more general entertainment-oriented content that you are going to see showing up on SVOD platforms like HBO Max moving forward.”

The bottom line

AT&T “gets” that pay-TV is closing in on the end of its lifecycle, and that streaming platforms are the future.

The bigger question is whether it really understands the OTT market. HBO made its chops – and has attracted tens of millions of global viewers, delivering an aggressively curated brand of content that ranks among the best in the world. Game of Thrones, anyone?

But, can it do the same by offering reruns of Friends and The Big Bang Theory? Or will it just end up confused?

Stay tuned.

Jim O’Neill is Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn