AT&T lost 945,000 Premium TV subscribers to its DIRECTV and U-Verse services and a further 219,000 AT&T TV NOW subscribers in the fourth quarter of 2019, a total video subscriber loss of 1.16 million. That contributed to a combined loss of over 4 million AT&T video subscribers in the United States in 2019, or over 17% of its video customer base. There are further subscriber losses to come, but AT&T expects they will be lower and is pinning its hopes on fibre, 5G, AT&T TV and HBO Max.
AT&T ended 2019 with 19.47 million Premium TV subscribers in the United States, down from 22.90 million at the start of the year, a loss of 3.43 million subscribers.
There were 926,000 AT&T NOW TV subscribers at the end of 2019, which was 665,000 fewer than at the start of the year.
Speaking to analysts, John Stephens, the chief financial officer of AT&T described it as “All in all, a very good year as we hit our 2019 targets.”
He said: “Long-term customer value continues to be our focus as we head into 2020. That focus has helped drive growth in video and IP broadband ARPUs.”
In other words, average revenue per user has gone up, and indeed it has. The average monthly revenue for Premium TV is $131.00, up from $121.76 a year previously. Average revenue for broadband has risen to $51.36 from $49.83.
However, video entertainment revenue has fallen to $32.11 billion in 2019, from $33.36 billion in 2018. Granted that is thirty-two billion dollars, which is still a tidy sum.
In the fourth quarter of 2019, “Premium video net losses improved sequentially by more than 200,000 subscribers”. That is to say the fourth quarter was not quite as bad as the third quarter, when AT&T lost 1.16 million premium video subscribers. That is one way to measure success.
He said: “Our new simplified video offerings position us for the long term, and our subscriber trends are improving.”
Readers can judge for themselves.
AT&T completed its acquisition of DIRECTV in July 2015 at a cost of $49 billion, or $67 billion including debt. At the time, DIRECTV had 19.54 million subscribers in the United States and AT&T had another 5.94 million U-verse television subscribers, making AT&T the largest television service provider in the country, with 25.48 million television customers.
At the end of 2019, AT&T had 20.40 million video customers in the United States, including 0.93 million using its over-the-top online service.
AT&T sees fibre and 5G as the future, rather than satellite television. In June 2019, DIRECTV launched what was to be its last satellite, AT&T T-16, with a planned operational life of 15 years. It still has around a dozen satellites in service, but the emphasis in now on delivering services online.
So, the loss of satellite customers could be seen as symptomatic of customers wanting to watch television in new ways, or the result of a deliberate strategic move by AT&T to anticipate more flexible ways of delivering services. Effectively, management are desperately skating to where they think the puck is going to be.
In 2018, AT&T spent $85 billion buying Time Warner, which incorporates HBO, CNN, TBS and the Warner Bros. film and TV studio.
AT&T is now preparing to launch AT&T TV, an online video service, and HBO Max, a premium subscription video on demand service.
John Stankey, the chief executive of WarnerMedia, said “HBO Max will be a game changer for our customers and for AT&T”. “Quite simply, 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.”
It should be noted that the percentage of culturally relevant offerings is not a normal metric by generally accepted accountancy principles. What it means is that HBO Max is going to be a premium product, unlike the others, and people will be prepared to pay for it.
“We fully expect HBO Max will have a positive and immediate impact on the stickiness of our wireless and pay TV and broadband offerings,” he said.
“In 2020, you’re going to see us apply the same high-value customer-centric focus, while increasing our fibre customer base and launching AT&T TV.”
“Our premium video subscriber declines will be more in line with overall video industry trends. Looking at our total premium video customer base, we expect year-over-year improvements in the subscriber losses.”
“Our gross add performance on video wasn’t strong,” he conceded. “As we move through this year and we start shifting to AT&T TV, our gross add performance starts to get much stronger. And naturally, when you’re able to put AT&T TV and a software-based product with fibre, it’s a much more natural combination than a satellite dish and fibre”.
AT&T makes most of its money from mobile communications, about $71.1 billion in 2019. Entertainment delivered $45.2 billion. Business provided a further $26.2 billion. The WarnerMedia division contributed $33.5 billion, of which HBO provided a mere $6.7 billion.
Overall, AT&T annual revenues of $181.2 billion were down 1% year-on-year on a comparative basis, but free cash flow was up by 30% to a record $29.0 billion. So, executives are happy and investors are happy. Never mind the loss of 4 million customers, profits are up.