Why Is AT&T’s DirecTV Business Underperforming?

by Trefis Team
-3.09%
Downside
37.78
Market
36.62
Trefis
T
AT&T
Rate   |   votes   |   Share

AT&T (NYSE:T) posted a weaker than expected set of Q3 results on Wednesday, on account of a sharp decline in its DirecTV satellite subscriber base and a significant slowdown in its subscriber growth for the DirectTV Now streaming service. However, this was partially offset by the company’s recently acquired entertainment assets, as well as growth in its core postpaid wireless phone business. In this note, we take a look at some of the factors that are impacting the DirecTV operations, which AT&T acquired just about three years ago, and what could lie ahead for the business.

View our interactive dashboard analysis which outlines our expectations for AT&T over 2018

Satellite Business Headwinds

AT&T’s DirecTV business has been underperforming significantly, losing 359,000 satellite customers over the quarter, taking its year-to-date losses to 833k satellite subscribers.  The company has attributed the decline to a large number of customers rolling off promotional discounts as well as competition from over-the-top streaming TV services, which are finding favor with younger customers. While the broader U.S. pay-TV market has been declining, satellite providers appear to be seeing sharper declines compared to cable-based pay TV players, likely due to a relatively lower mix of subscribers with bundled services (phone, broadband), which results in attrition. For instance, over Q2 satellite providers lost about 1.5% of their customer base, whereas the top cable providers lost just 0.6%. While it’s possible that this trend could continue in the near term, AT&T could better manage content costs and protect margins, leveraging its recent acquisition of Time Warner.

DirecTV Now Declines Are Partly Strategic

AT&T’s DirecTV Now streaming TV product – which it was counting on to hedge its linear TV offerings – also had a tough quarter, with net adds slowing down to just 49k subscribers, down from 342k in the previous quarter. AT&T has indicated that part of this decline was actually deliberate, as the company has been looking to reduce its exposure to low-value, high-churn customers, who often sign up for the service for just a few months to watch some particular seasonal content. For instance, the company says that it is using a data-driven approach to rationalize its promotions and special offers for the services. While this could be helpful for the company from a margins perspective, the slowing growth could impact overall TV revenues.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!