AT&T, prepping a new effort to offset declines in its traditional pay-TV biz, plans to test a “thin” streaming set-top box and service in the first half of 2019 aimed at improving the profitability of its TV bundles.
Variety first reported on the set-top box a year ago (pictured above), a wireless device that runs Google’s Android TV platform and was described as supporting 4K video.
“Over time, it should lower our acquisition cost of our premium video service,” John Donovan, CEO of AT&T Communications, said about the new set-top and service on the telco’s third-quarter 2018 earnings call Wednesday.
The trials of the device and service will have a “measured roll out,” according to Donovan. He compared it to AT&T’s Watch TV, a 30-channel service that debuted this summer as a freebie for its top-tier unlimited wireless subs (and priced at $15 per month for others). Like Watch TV, Donovan said, “we expect this service to be EBITDA positive,” referring to earnings before interest, taxes, depreciation and amortization.
An AT&T spokeswoman declined to provide additional information on the set-top or the package of content that will be offered through it. On the telco’s Q2 conference call in July, Donovan described plans to test a “streaming product that will give the full DirecTV experience over any broadband, ours or competitors’,” originally slated for later in 2018.
The move comes as AT&T’s pay-TV business keeps deteriorating — and the DirecTV Now over-the-top TV package fails to make up for the cord-cutting losses.
For Q3, the telco lost 346,000 DirecTV satellite and AT&T Uverse video customers and added a net 49,000 customers for DirecTV Now (which stood at 1.86 million subscribers at the end of the quarter). In July, DirecTV Now raised the price of its bundles by $5 per month. Donovan told analysts that with the price hike, “We actually expected a far worse outcome than we had.”
As part of efforts to boost the profitability of DirecTV Now, Donovan said AT&T is “evaluating our channel lineups and taking a fresh look at how we can align content cost with the price,” adding that many customers “want smaller, value-based video packages.”
AT&T’s Entertainment Group also has moved to “rationalize our promotions and special offers” for DirecTV Now, focusing on reducing discounts for “low-value, high-churn customers,” according to Donovan. In addition, he noted that a two-year price-lock promotion for DirecTV and U-verse is about to expire, which will provide “significant margin relief through 2019.”