AT&T has officially kicked DirecTV, which has been hemorrhaging subscribers, to the back burner of its pay-TV strategy. But its new internet-fueled competitor likely won’t stanch the cord-cutting bleeding.
Starting this week, the telco is throwing all its weight behind AT&T TV, which launches nationwide March 2. Built on an Android-based set-top, the broadband-delivered service offers a lineup of hundreds of live TV channels; 500 hours of DVR storage space; and 40,000 on-demand titles, which can be streamed on a mobile device anywhere in the U.S.
It’s also AT&T’s first TV product to embrace other streaming services, with access to Netflix, Disney Plus, YouTube, Spotify, Pandora — and HBO Max, when it launches in May — along with more than 5,000 apps through the Google Play store, like those for Uber and Starbucks (in case you want to order a latte from your TV).
Plus, the AT&T TV voice-enabled remote control is integrated with Google Assistant, which lets you instruct it to tune to a channel, search for shows or movies, provide a weather report or even dim the living-room lights if you have a compatible smart-home setup. In another piece of the Google partnership, AT&T TV search results will present titles available for purchase or rental on Google Play Movies & TV in addition to listing the TV and streaming services on which they’re available. “We’ve built a next-generation, premium entertainment experience that can be the hub of your home,” said G.W. Shaw, VP of video product management.
From here on out, “Our lead TV products will be AT&T TV and HBO Max,” said Rasesh Patel, AT&T’s executive VP of broadband and video. DirecTV plans will still be available, but not actively marketed.
The telco plans to roll out a splashy ad campaign for AT&T TV featuring spokes-celebs touting the glories of the new voice controls, including LeBron James, Missy Elliott, Martha Stewart — and “Sesame Street’s” Cookie Monster.
AT&T TV ad with NBA star LeBron James
The hope is that AT&T TV, which the company has tested out in 13 trial markets for several months, can reverse the massive subscriber slide that has peeled off millions of pay-TV customers from DirecTV since the company acquired the service for $49 billion in 2015. AT&T lost a staggering 4.1 million video subscribers last year (including nearly 1.2 million in Q4 alone).
The problem with the new offering? While AT&T TV has attractive intro pricing, the packages require customers to lock in to two-year contract — with prices nearly doubling after 12 months.
For example, the entry-level Entertainment plan, with about 70 cable channels plus locals, has a promo rate of $49.99 per month for the first year. But starting in the 13th month, that spikes 86%, to $93 per month. AT&T TV’s top-end Ultimate tier, with more than 170 channels, is $69.99 monthly for the first year, then bumps up 93% to $135 per month. Premium channels like HBO, Cinemax, Showtime, Starz and Epix cost extra (although new customers will get all of those thrown in free for three months).
Moreover, unlike other over-the-top services, AT&T TV carries a $19.95 activation fee and prorated early-termination fees if you cancel before the two-year contract is up. There’s also an additional regional sports fee of “up to” $8.49 per mo. (for AT&T TV’s Choice, Xtra and Ultimate packages). The product includes one set-top box for free; each additional set-top costs $120. AT&T TV accounts are limited to watching three streams simultaneously.
Asked whether AT&T is concerned about subscribers’ sticker shock once their rates go up, Patel said, “We feel really good about the product experience. It’s very unique.” He added that because AT&T TV works over any broadband connection, “it expands the markets we can serve,” including in locations like apartment buildings where DirecTV’s satellites can’t reach.
The company also is launching 1-gigabit broadband across its wireline footprint, priced at $40 per month when customers get it in a bundle with AT&T TV. In addition, if you pair AT&T TV with the telco’s broadband or wireless plans, you’ll get a $10 monthly discount on the TV plan — which may not seem like such a great deal once the Year 2 price escalators on AT&T TV kick in. AT&T TV can be self-installed (“No satellite dish, no cable box, no appointments necessary,” per its marketing site), which besides being more convenient for customers also saves the company money. AT&T TV requires high-speed internet with a recommend minimum connection of 8 megabits per second per stream.
AT&T TV’s Android-based set-top and voice remote
For all of AT&T TV’s whizzy features and promise of easy setup, price-conscious consumers will likely balk. Surveys consistently show that high prices are the No. 1 reason people cut the pay-TV cord. And the strategy of luring customers with low rates and then jacking them up is precisely what caused AT&T’s over-the-top video product (currently called AT&T TV Now) to plummet from a peak of 1.86 million in the third quarter of 2018 to 926,000 at the end of 2019.
“The moment [internet TV services] try to normalize their prices, they unsurprisingly bleed subscribers,” Pivotal Research Group’s Jeffrey Wlodarczak noted in a Feb. 28 report.
Pay-TV services still throw off tons of cash, but the issue for AT&T is that it’s a shrinking business that’s been dragging down the company’s growth profile. Its video entertainment revenue last year was $31.1 billion, down 3.7%.
Last fall, AT&T had been exploring a sale of DirecTV or a merger with satellite rival Dish Network, the Wall Street Journal reported. While AT&T chief operating officer John Stankey subsequently denied that the telco planned to divest DirecTV, some industry observers predict such an outcome is inevitable. “It’s a private equity deal waiting to happen,” said one media strategy consultant, who requested anonymity because AT&T is a client. “Had [CEO] Randall [Stephenson] foreseen the dominance of streaming back then, would DirecTV still have made sense? I think the answer is probably ‘no.’”
AT&T execs promise more enhancements to come to AT&T TV — which is built on a software-based platform, the same stack that runs AT&T TV Now — to burnish its appeal. Patel said customers will see special offers for HBO Max, regularly priced at $15 per month, when it launches.
While the service currently lacks Amazon Prime Video and Hulu, the telco is in talks to bring those to the platform. AT&T TV also does not include NFL Sunday Ticket, a premium add-on package that provides every Sunday afternoon out-of-market game during the league’s regular season. For now, the telco has rights to offer that only through DirecTV.