Q. Can you explain something to me? Why did AT&T abandon DIRECTV after paying all that money for it? It makes no sense to me. Why buy it if they are not going to run the business the right way? It seems like all they care about is streaming and they don’t care anything about DIRECTV’s customers. Can you explain this?! — Sandy, Taos, New Mexico.
Sandy, that’s a great question. In 2015, AT&T purchased DIRECTV for $49 billion which would suggest the company had great plans for the satellite TV service.
However, since the deal, AT&T has treated DIRECTV like the proverbial ugly stepsister, choosing instead to invest its time and money in new streaming services such as AT&T TV Now (live streaming service formerly known as DIRECTV Now), AT&T TV Watch (live streaming on mobile devices), AT&T TV (live streaming delivered over a company set-top) and HBO Max (a new HBO online service debuting May 27.)
Meg James of The Los Angeles Times chronicled this strange strategy in her excellent January 31, 2020 story entitled, ‘Nearly 3 Million Subscribers Ditched DIRECTV Last Year. Will AT&T Do the Same?’
“Since AT&T took over, hundreds of (DIRECTV) workers have been cut. Software applications and other functions have been outsourced to IBM and Accenture. The company has been eager to sell smaller assets, including its regional sports networks, and has even considered abandoning its exclusive arrangement with the NFL for the popular NFL Sunday Ticket, according to knowledgeable people who requested anonymity because they’re not authorized to comment publicly. The NFL package — a signature DirecTV offering for 25 years — has become a money loser for AT&T, given the high cost of sports rights,” James wrote.
AT&T’s peculiar policies have led to roughly five million DIRECTV subscribers dropping their service since 2015 with many saying the new owner abandoned them before they did the same to the satcaster. Ex-DIRECTV subscribers (and many current ones) have filled Internet message boards with stories of shoddy customer service and other complaints over the last five years.
“AT&T has slashed funds that had been devoted to recruiting new DIRECTV subscribers and used that money instead to develop new platforms (such as AT&T TV and AT&T TV Now), according to analysts,” James wrote in January.
So why did AT&T take this course, you ask? Even a company as deep-pocketed as AT&T can’t afford to waste $49 billion, right?
I think that when AT&T first expressed interest in purchasing DIRECTV, it truly believed the satellite TV business had many years to go before it would be replaced by streaming. Consequently, the prospect of obtaining more than 20 million TV subscribers was exciting to AT&T executives who foresaw selling other company assets to them, such as phone service.
However, shortly after the acquisition, AT&T became concerned that cord-cutting would soon gut the traditional TV business, including satellite and cable. In 2016 and 2017, newspapers and industry web sites were overflowing with predictions from Wall Street analysts and journalists that cable and satellite would soon be extinct.
AT&T could have ignored the forecasts and continued to invest in improving DIRECTV’s service and programming quality. If it had, the satcaster may have been able to minimize the subscriber defections.
But by choosing instead to publicly place its bet on streaming, AT&T sent a strong signal to DIRECTV subscribers that it didn’t believe satellite TV had a strong future. This decision combined with the tidal wave of press coverage about cord-cutting eventually helped convince millions of DIRECTV subs to drop service. If AT&T doesn’t believe in DIRECTV, why should we?
I won’t say AT&T panicked in 2016 and 2017. But the company clearly overreacted to the cord-cutting stories. The wise course would have been to fortify DIRECTV while getting the streaming business ready in private for possible launch in later years. After all, AT&T had just invested $49 billion in the satellite TV business. That investment needed to be protected.
But AT&T actually launched DIRECTV Now in November 2016, less than two years after it bought DIRECTV! And company executives suggested the new live streaming service would eventually replace DIRECTV.
That was premature. DIRECTV subscribers soon started to flee in bigger numbers. And, ironically, DIRECTV Now (now AT&T TV Now) has become a failure as well with the service losing hundreds of thousands of subscribers over the last year.
It was a lose-lose for everyone.
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— Phillip Swann