AT&T pay TV services are in a mess, with DirecTV and AT&T TV Now bleeding subscribers and AT&T TV launching into an unfavorable market. The company is pinning all its hope on HBO MAX, which launches next month. It had better be a success, or the company will have no pay TV strategy at all!
Pay TV usage up while cancelations accelerate
Shelter-in-place orders have boosted the amount of time traditional TV viewers spend watching just as much as online TV. comScore says ratings for the big four networks increased 24% when comparing the third week of March between 2019 and 2020. However, it looks like the increased usage has done nothing to slow the number of people abandoning traditional pay TV.
AT&T reports it lost just under7 900,000 DirecTV and U-verse TV customers in the first quarter of 2020. The 4.6% decline was double the same period last year. AT&T has lost an eye-popping 17% of DirecTV and U-verse customers between Q1 2019 and Q1 2020.
There is a similar, though less extreme, trend at Verizon. The company lost 2% or 84,000 FiOS TV customers in Q1 2020. In the same quarter in 2019, it lost 1.2% or 53,000. Between Q1 2020 and Q1 2019, it lost a quarter of million subscribers or 6%. Watch for Comcast to confirm the trend on Thursday when it reports its Q1 performance.
AT&T TV Now continues collapse
The unloved stepchild in AT&T’s video portfolio is AT&T TV Now (formally DirecTV Now.) From its launch in 2016, the service was promoted heavily with low-cost and free bundles. It grew rapidly to reach a peak of 1.9 million subscribers in Q2 2018. It was at this point that AT&T decided the large bundle model was the wrong way to approach the market and withdrew all offers and promotions for the product.
AT&T TV Now lost another 15% of its customer base in the first quarter of 2020, settling to 788,000. Since Q1 2019, the service has lost almost half of its subscriber base.
Curiously, AT&T has never given any update on its mobile-friendly WatchTV service. The truly skinny bundle 35-channel live service targets mobile users. The company provides access to WatchTV to its unlimited mobile customers. Others can subscribe to it for $15 a month.
AT&T TV not a factor and will not be in Q2 either
Late in Q1, AT&T launched a new pay TV service called AT&T TV, an online version of DirecTV. The service follows standard pay TV practices, with 2-year agreements and three tiers of service. Prices start at $39.99 a month (rising to $79.99 in the second year.) All AT&T had to say about the service was:
“We launched AT&T TV nationally late in the quarter, and subscriber growth was in line with our expectations, even with COVID impacts.”
Hopefully, in the second quarter, AT&T will give a better view of how the service is doing. Expect to see tepid service take-up. Even after people begin to get back to work next month, the economy will take deep into 2021 to start to recover. People will be reluctant to make a two-year commitment to a traditional pay TV service when they can pick up SLING TV for less with no commitment at all.
Pay TV ARPU lone bright spot
Perhaps the one lone bright spot in AT&T’s pay TV universe is the amount of money it is receiving per subscriber. ARPU (average revenue per unit) is up almost 10% over Q1 2019, at $126 a month. AT&T has said it is focusing on retaining the highest paying customers. The fact that ARPU has increased suggests lower-paying customers are leaving, and its strategy is working. That said, it is making marginally more profit on much lower revenue. The company earned $7.4 billion from video services in Q1 2020, down $650 million (or 9%) over the same quarter in 2019.
ARPU dipped slightly in Q1 from the last quarter. However, it usually does, as consumers cancel premium services right after the holidays.
Next quarter, AT&T will be talking about HBO MAX, which is scheduled to launch in one month. Make no mistake; the company will pull out all the stops to make it a success. Without it, the company has no pay TV service to carry it into the future at all!
Note: AT&T does not report subscribers to HBO NOW in its financial documents.