UPDATED with closing stock prices. The stocks of cable programmers Discovery, AMC Networks and Viacom have all dropped between 3%-4% today despite broader-market gains as investors process the news that their networks are caught in the shuffle at DirecTV Now.
After reports in recent days pointed to changes, AT&T’s DirecTV Now has confirmed it is rolling out new, higher-priced bundles — a $50-a-month “Plus” plan and the $70-a-month “Max,” each of which includes HBO. Current subscribers to DirecTV Now will be able to keep their current packages, but will pay more for HBO if they do — $15 a month instead of $5. The price hike is expected to drive conversions to the new $50 and $70 plans.
The big change is that the Plus tier will drop a host of household-name networks including MTV, HGTV and A&E, amplifying questions about the networks’ viability in the TV bundle of tomorrow. Of course, many of the networks out in the cold on that one tier are still available via AT&T’s Watch bundle for its wireless customers as well as through No. 1 traditional satellite operator DirecTV.
AMC Networks shares dropped nearly 5% on the day, closing at $58.98. Viacom fell 3% to $28.45, while Discovery gave up 5% to $26.93. Given that it stands to potentially boost profits on the move (though the impact on subscriber growth is an open question), AT&T saw its shares trade down 1% to $30.28.
Programmers have all been preparing for this day in many ways, of course, diversifying their revenue mixes and exploring alternative distribution avenues. AMC, Discovery and Viacom, for example, all struck deals for their content to be on Philo, a sports-free bundle that launched in 2017 with a $16 entry-level price and a plan to target consumers looking for a low-cost viewing alternative.
Viacom, whose only basic carriage in the skinny marketplace is on Sling, placed an assertive bet in January on its ability to control its own streaming future, buying the ad-supported startup Pluto TV for $340 million.
Pricing, meanwhile, has gotten a lot more aggressive as YouTube and Hulu have joined the skinny fray. DirecTV Now’s new plans start $10 higher than that of major rivals, including Dish Networks’ Sling TV. With a total footprint of around 8 million U.S. households, skinny packages are not even 10% of the total pay-TV universe. Recent quarterly numbers from AT&T and Dish have raised doubts about their near-term growth prospects, even though major M&A lately in media has been predicated on an Internet-delivered TV future.
While some Wall Street analysts see the main takeaway as bad for programmers that are seen by distributors as not having must-have programming, others say the reshuffling by AT&T is a statement about the viability of skinny bundles. Rich Greenfield of BTIG, never a shrinking violet, sent an email to his contacts with a subject line telegraphing its contents: “Happy Price Hike Wednesday brought to you by DirecTV Now.”
Todd Juenger of Sanford Bernstein called the move by AT&T a “clear signal” about the profitability questions swirling around virtual MVPDs. DirecTV Now saw a steeper-than-expected drop in subscribers in the fourth quarter of 2018 after it ended aggressive promotional discounts. Sling, meanwhile, has just rolled out a 40% discount, prompting questions about how the services will ultimately make money, given they have no long-term contracts like traditional pay-TV and lower price points.
“Over time, the day of reckoning is inevitable,” Juenger wrote in a note to clients. “Even Google can’t keep selling a product to consumers for less than it costs to acquire, forever. Either the price has to go up, or channel lineup down, or both. DirecTV has confirmed what we already knew about which networks will be the biggest victims.”