Q. I just don’t understand what AT&T is doing with DIRECTV. It seems like it wants to get rid of it because it doesn’t do anything for us, the customers, except raise our prices. What is their plan, or do they even have one? — Maggie, Greenville, Mississippi.
Maggie, DIRECTV subscribers, like yourself, seem to be confused over AT&T’s plans for the nation’s largest satellite TV service. The satcaster has lost millions of subscribers since AT&T purchased it in 2015, but AT&T has done little to improve the product, or the customer service.
The uncertainty over DIRECTV’s future escalated this week when AT&T announced that it was going nationwide with its new streaming service, AT&T TV. The Internet-based offering, which requires an AT&T set-top, features programming packages similar to DIRECTV, and with the same prices.
(The biggest difference between the two is that AT&T TV does not have the NFL Sunday Ticket, nor a complete lineup of local and regionals sports channels in some markets. There’s also no live 4K programming.)
AT&T officials see AT&T TV becoming the primary focus of their multi-channel TV business, which includes U-verse, AT&T TV Now as well as DIRECTV. So if that’s the case, what’s the plan for DIRECTV, which still has roughly 16 million satellite TV subscribers?
John Stankey, president and COO of AT&T, yesterday offered some insights into his company’s plans for DIRECTV at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco.
Stankey reiterated that AT&T believes the satellite TV business is not growing, and consequently, the company needs to emphasize products that will grow, such as streaming.
“I think, back in July of 2015, after we closed the DIRECTV transaction, we (said) that at that point in time that we didn’t see satellite delivery as necessarily a growth vehicle for entertainment moving forward,” Stankey said. “We like the DIRECTV customer base, thought it was attractive. But we felt like the march needed to be to delivering entertainment over software. And shortly after that period of time, we made it clear that we would be developing a software platform that would ultimately not only take our satellite base and offer them a more updated product, but be the replacement for the U-verse space that was already in service and give them the next generation of software-driven TV.”
Stankey said AT&T TV is now the company’s lead TV product. DIRECTV, he added, would be marketed primarily in areas where high-speed Internet service is not easily accessible. (AT&T TV needs high-speed Internet service to operate.)
“We will continue to offer satellite and DIRECTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes, more rural or less dense suburban areas,” Stankey said. “We’ll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have. But in terms of our marketing muscle and our momentum in the market, it will be about software-driven pay TV packages.”
In practical terms, this means that when you call AT&T looking for video service, the company will push AT&T TV, not DIRECTV or U-verse. In addition, marketing and advertising dollars will likely be shifted from DIRECTV to AT&T TV, except in those rural markets.
This doesn’t mean that AT&T is pulling the plug on either DIRECTV or U-verse. But it does mean the company wants to begin a rapid transition of subscribers to those two services to AT&T TV. Of course, whether that transition is successful is another story. Many DIRECTV and U-verse subscribers may decide simply to drop their service and subscribe to a non-AT&T product, or not subscribe at all.
The prospect of an unseemly transition has prompted some analysts to wonder if AT&T will try to sell DIRECTV to Dish, its satellite TV rival for more than two decades. Stankey seemed to hold the door open for that possibility, although he noted a Dish-DIRECTV merger could face regulatory obstacles in Washington, D.C.
“We believe there’s some limitations, as there always is, in what we can do from a regulatory perspective as we think about asset disposition or consolidation,” Stankey said. “The satellite business would be one of those, where there’s natural places for it to go. I would tell you we don’t see it really running in the regulatory environment. And I would also say, you have to be a little circumspect as an executive right now. If you’re doing anything that requires approval, my read of the environment is it’s a little unpredictable.
He added: “That doesn’t mean that there aren’t some other opportunities around how to structure this (a Dish-DIRECTV joint effort) that might allow you to get some benefits: shared infrastructure, different marketing structures, I don’t know. We examine them all. We’ll continue to examine them all. If something pops up, there aren’t any sacred cows with this management team in looking at those things. There are none at this juncture. It doesn’t mean they don’t arrive at some point in the future.”
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— Phillip Swann