In the federal class-action lawsuit, the plaintiffs allege that AT&T wanted to make DirecTV Now seem more successful than it actually was as another way to rationalize its $85 billion acquisition of Time Warner (now called WarnerMedia).
“While AT&T and the Executive Defendants repeatedly touted the success of DirecTV Now, depicting it as a fast-growing product with strong margins and brisk subscriber growth, in truth, this apparent success was a complete mirage,” the lawsuit states. “Information provided by multiple former employees of AT&T and its affiliates from across the country collectively confirm a wide-ranging fraud, perpetrated at the highest levels of the Company, as it pertains to subscriber numbers, promotional activity, customer churn, and the growth and success of DirecTV Now.”
AT&T, in response to the lawsuit, said in a statement, “We plan to fight these baseless claims in court.”
Per the lawsuit, AT&T “strong-armed” employees into creating fake DirecTV Now accounts, using different tactics “to covertly add the product to customer’s AT&T accounts without their knowledge.” For example, according to the investor suit, employees told customers they were waiving a $35 fee for phone upgrades but actually did assess the fee — and then used that to create up to three DirecTV Now accounts with fake email addresses.
AT&T also pressured staffers to sell as many subscriptions to DirecTV Now as possible with unrealistic sales quotas, the lawsuit claims. As the lawsuit notes, AT&T ended the $35-per-month special introductory pricing for a package with more than 100 channels less than six weeks after it launched DirecTV Now in 2016.
“Given the heavy promotional activity, intense sales pressure, and prevalence of fake accounts, it is unsurprising that many DirecTV Now accounts were not being used and were promptly cancelled,” the lawsuit says.
The lawsuit also claims DirecTV Now experienced severe technical issues and the service’s carried “irrationally low prices.” The plaintiffs accuse AT&T execs of knowing that DirecTV Now was suffering high churn rates and wasn’t profitable but failed to disclose that. For example, in January 2019, AT&T CFO John Stephens told investors that about 500,000 DirecTV Now customers, who had been paying $10 per month, had either cancelled service or stepped-up to regular pricing by the end of 2018. “This statement further revealed the extent of the promotional activity for DirecTV Now, the extent of the churn problem DirecTV Now was facing… and the fact that DirecTV Now was not profitable,” the investors said in the lawsuit.
For the 12 months ended June 30, AT&T lost 469,000 DirecTV Now customers — a 26% drop. The telco has blamed the drop on the roll-off of promotional offers and price hikes on existing customers. As of the end of the second quarter of 2019, AT&T reported 1.34 million total DirecTV Now subs (including 8,000 free or substantially free trial-period subscribers). The service peaked at 1.86 million customers in the September 2018 quarter.
This summer, AT&T killed off the “DirecTV Now” name and rebranded it “AT&T TV Now,” coming ahead of the launch of its fat-bundle service, AT&T TV, in 10 markets.
The lawsuit seeks unspecified compensatory monetary damages plus interest. News of the complaint, filed Sept. 13 in the U.S. District Court for the Southern District of New York, was first reported by Bloomberg.
The lawsuit, in addition to AT&T, names as defendants chairman and CEO Randall Stephenson, CFO John Stephens, and John Stankey, CEO of WarnerMedia and soon to assume the role of AT&T’s COO, among other executives and members of the company’s board.
The suit’s court-appointed lead plaintiffs on behalf of the class are the Steamfitters Local 449 Pension Plan, Iron Workers Locals 40, 361 & 417 Union Security Funds and Iron Workers Local 580 Joint Funds, Local 295 IBT Employer Group Pension Fund, and former Time Warner investor Melvin Gross.