AT&T’s Pay TV Business: 2016 In Review
2016 turned out to be a relatively tough year for the U.S. pay TV market, with subscriber attrition accelerating amid cord cutting and competition from online streaming services. However, AT&T (NYSE:T), which became the largest pay TV provider with its 2015 acquisition of DirecTV, fared better than the broader market by focusing on improving profitability and keeping customer attrition in check. Below we provide some of the key takeaways from the performance of AT&T’s pay TV business over the past year.
See our complete analysis for AT&T | Comcast | Dish Networks
We have a $44 price estimate for AT&T, which is about 10% ahead of the current market price.
- How Will An Expanding Postpaid Phone Business Drive AT&T Stock’s Q1 Results?
- Down 50% From 2021, We Think There’s Upside For AT&T Stock
- Will AT&T Stock See Gains Post Q2 Results?
- At $15, AT&T Stock Appears Oversold
- AT&T Stock Held Up In A Tough Market. What Does 2023 Hold?
- What’s Happening With AT&T Stock?
AT&T Outperformed The Market, But Lagged Behind Comcast
The major U.S. pay TV providers lost a total of about 910k subscribers over the first nine months of 2016, according to Leichtman Research, compared to a loss of about 585k subscribers during the same period last year. AT&T fared better than the broader market, with losses standing 13k subscribers over the first nine months, driven by its marketing muscle and increased cross-selling to wireless customers. However, the carrier lagged behind Comcast, which gained about 81k subscribers, driven largely by bundling pay TV with its expanding high-speed internet business. AT&T had a total of 25.3 million subscribers at the end of Q3, compared to Comcast, which has 22.4 million subscribers. [1]
AT&T Is Focusing On Profitability
AT&T has been focusing on bolstering the profitability of its pay TV services. The company says that it is on track to deliver at least $2.5 billion in annual cost synergies from the DirecTV deal by 2018. Moreover, AT&T is re-aligning its pay TV brands to focus on cost reduction. For instance, the company has been promoting DirecTV over its legacy IP TV based U-Verse service, given the lower costs and higher ARPU. As of last year, AT&T noted that content cost per DirecTV subscriber was roughly $17 less per month compared to U-verse customers, implying that margins should be significantly thicker. Pay TV price hikes are typically an annual occurrence in the U.S., and AT&T has been raising its prices on its offerings in order to recoup the growing costs for programming, such as sports and entertainment. Earlier this year, the company increased monthly subscription fees on both DirecTV as well as U-Verse by $2 to $8 per month.
AT&T Is Hedging its Bets With DirecTV Now Streaming TV
AT&T is hedging the future of its pay TV operations, launching its first Over-The-Top (OTT) streaming TV subscription service dubbed DirecTV Now in late November. The product – which will have an introductory price of just $35 for 100+ channels – is targeted squarely at cord cutters and so called cord-nevers, a market AT&T estimates to be as large as 20 million households. While we expect gross margins for the service to be significantly lower compared to AT&T’s current pay TV offerings, this could be partially compensated by significantly lower customer acquisition, installation and maintenance costs. Moreover, AT&T’s pivot towards content creation, with the proposed Time Warner acquisition, could also help keep costs down. (related:AT&T’s New Streaming TV Service Is Poised For A Strong Start)
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research