The company is preparing to roll out two higher-priced bundles – “Plus” and “Max” — costing $50 and $70 a month, respectively. Those bundles will replace existing lineups starting at $40 a month. Each new option includes HBO but drops some high-profile entertainment channels from Viacom, A+E Networks, Discovery and AMC Networks.
The moves come after AT&T delivered an unwelcome surprise to investors in its fourth-quarter earnings report in January, revealing a decline in DirecTV Now subscribers due to the expiration of promotional pricing. DirecTV Now shed a startling 267,000 customers in the quarter, ending its steady gains since launching in the fall of 2016. The internet-delivered TV bundle ended 2018 just shy of 1.6 million customers, up 38% from 2017.
Recent softness at DirecTV Now and Dish Network’s Sling TV have been countered by gains for skinny-bundle services offered by YouTube and Hulu, which are unencumbered by legacy subscription assets. The governing motivation for AT&T’s 2015 acquisition of DirecTV, despite what executives acknowledged to be its declining trajectory, was the ability to convert its traditional satellite customers to internet-delivered TV service.
CEO Randall Stephenson had publicly mentioned a likely price increase, and has also spoken about refining the bundle packages to increase their relevance to consumers. The changes come as the company’s WarnerMedia entertainment unit is in the process of formulating its direct-to-consumer subscription service, due out in beta by the end of 2019.
Shares in AT&T have gained a shade less than 1% today and entered the final hour of trading at $30.21 a share.
Wall Street analysts pounced on the news. John Hodulik of UBS wrote in a note to clients that the moves show that relations between distributors and programmers are becoming “increasingly contentious as distributors focus on profitability.” He estimates subscriber losses at DirecTV Now will increase to 822,000 fiscal 2019, but profitability in the Entertainment unit of AT&T where DirecTV is housed, will increase due to lower programming costs. Viacom, Hodulik maintains, is the much bigger loser in the scenario.
Rich Greenfield, an analyst with BTIG, takes a dimmer view of AT&T’s fortunes. “While the new pricing will certainly help DirecTV Now move toward gross margin profitability,” he wrote in a blog post, “it does appear to make its vMVPD service far less compelling to consumers, with both of its direct competitors cheaper (YouTube TV at $40 and Hulu Live at $45).”
Cord Cutters News had the first report about AT&T’s streaming changes.