News and Analysis
Would you like to see the very picture of desperation?

Well, here it is:

Picture of Randall L. Stephenson

That’s a picture of AT&T CEO Randall Stephenson, whose company revealed today that DIRECTV Now, its live streaming service, lost a net of 83,000 subscribers in the first quarter. Stephenson also reported that DIRECTV and U-verse, its two traditional pay TV outfits, lost a net of 544,000 subscribers in the first quarter. That means the three video services lost a combined 627,000 customers in the first three months of 2019.

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If that doesn’t make someone desperate, I’m not sure what does.

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But although the losses by DIRECTV and U-verse are somewhat staggering, it’s the DIRECTV Now defections that probably has Stephenson (and his company’s shareholders) climbing the walls. As a live streaming service in the Internet age, DIRECTV Now is supposed to be part of a growth industry! But with the first quarter losses added to the net loss of 267,000 subscribers in the 2018 fourth quarter, DIRECTV Now has lost roughly 17.5 percent of its subscribers over the last six months. (The streamer now has approximately 1.5 million subs left.)

The inability to grow DIRECTV Now’s base, or at least sustain it, has really turned Stephenson into a desperate man. Let me explain.

The AT&T chief last January acknowledged that DIRECTV Now’s promotional prices in 2018 helped trigger an impressive growth spurt during the year. But he also admitted the low prices, which included a $10 a month offer for three months, made DIRECTV Now a bottom line loser. With programming acquisition costs escalating, there was no way that DIRECTV Now could generate a profit with such low monthly fees.

So Stephenson vowed to remove the promotional prices (albeit using corporate speak; see below) and focus on what he likes to call the ‘quality subscriber,’ one who is content with paying a higher monthly bill. In fact, AT&T raised the base price for DIRECTV Now to $50 a month to try to ensure that revenue would exceed the costs.

“We told you in November there were 500,000 of (DIRECTV Now) customers on the promotional pricing,” Stephenson told financial analysts in a conference call, following the release of the fourth quarter report. “And we started allowing those customers to a trade out that obviously has a significant impact on dilution (making DIRECTV Now less profitable). You know, the product has been dilutive in 2018. (Again, dilutive is corporate speak for not being profitable.)

“This is one of the main drivers of (making DIRECTV Now less profitable) and this is also one of the primary triggers as we move into 2019 to getting us to EBITDA stability, as we begin to get the promotional subscribers out and now we have a customer base that’s left on the streaming that’s growing, remaining customer base is growing and is a highly engaged customer base and has good churn characteristics.”

But with no promotional prices — and a higher base price — subscribers continued to flee, which led to the loss of 83,000 customers in the first quarter. So guess what Stephenson and his team decided to do? That’s right. Bring back the promotional prices. DIRECTV Now is now offering $20 a month off the first three months for new customers.

That brings the base price down to $30 a month. While it’s not $10 a month, it’s still too little to make that promotional customer a profitable one. But AT&T and Stephenson are clearly desperate to get subs moving north again.

It would seem after Stephenson’s lecture on promotional pricing, the company wouldn’t go right back to it so soon. But it’s like a recovering alcoholic. It’s easy to quit when times are good. But when trouble arises, the temptation of a shot of Jack Daniels can be too much to handle.

And right now, with DIRECTV, U-verse and DIRECTV Now all bleeding subs, a shot of Jack probably would look pretty good to Randall Stephenson.

— Phillip Swann