Q. I was reading your story about AT&T TV and was thinking of getting it. But it has a two-year contract. Why is that? Isn’t streaming supposed to be all about cutting the cord and having some freedom? — Aimee, Suitland, Maryland.
Aimee, that’s a good point. Today’s live streaming services, such as YouTube TV, Hulu Live and Sling TV, allow you to cancel their service at any time. (Although you might have to pay the remainder of the current month.) In fact, AT&T’s own AT&T TV Now, formerly known as DIRECTV Now, permits no-strings cancellation.
The ability to drop service without paying a penalty (or returning equipment) is one reason why many cable and satellite subscribers have signed up for the new offerings.
But AT&T TV, which delivers programming over an Internet-based set-top, does require a two-year agreement, just like DIRECTV, also owned by AT&T. The only difference between the two here is that DIRECTV’s charges a $20 a month penalty for each month left in your agreement if you cancel while AT&T TV requires a $15 a month termination fee.(Note: AT&T does offer a 14-day free trial, but that won’t help you on day 15 and beyond.)
The two-year agreement, which I have recommended against here, seems out of step with today’s new technologies. Many industry observers, including yours truly, expressed puzzlement over the stipulation when AT&T launched the new service. (In addition, AT&T charges a $19.95 ‘activation fee,’ another pay TV relic.)
So why does AT&T require a two-year agreement? Doesn’t the company understand it could stop people from signing up?
Yes, but AT&T believes that the two-year contract, whether applied to DIRECTV, AT&T phone service, or AT&T TV, helps prevent what the industry calls ‘churn’ — customers canceling service.
Churn is expensive because a company such as AT&T spends significant money on obtaining each customer, but if he or she can cancel after a month or so, that investment (marketing, set-top manufacturing, etc.) is quickly lost.
The two-year agreement ensures that a new customer will stay with the service. That is, unless he or she wants to pay that penalty.
Of course, with a two-year agreement, fewer people may subscribe, particularly considering that AT&T TV is a new product. Why sign up for two years for a product you’ve never seen before?
But AT&T’s philosophy is that it’s willing to forgo signing up some ‘lookie loos’ to get a subscriber base of committed users.
We’ll see in the coming months how that strategy plays out.
Aimee, hope that helps. Happy viewing, and stay safe!
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— Phillip Swann