‘The ravages of cord-cutting’: AT&T’s race against time to save its TV business – The Washington Post

AT&T’s push to acquire DirecTV in 2015 looked like brilliance at first. Having captured most of the low-hanging fruit in the telephone and wireless markets already, AT&T’s expansion into the television industry promised much more room for growth. By offering DirecTV directly to consumers, AT&T might gain new customers, hang onto old ones and take advantage of viewing data for advertising purposes.

But almost from the beginning, the deal’s potential seemed limited by the growing number of consumers who have been abandoning traditional television services. With more Americans embracing online alternatives, AT&T may have inherited in DirecTV — and its 20 million subscribers — a brewing long-term headache that can be solved only by either preventing or compensating for the effects of cord-cutting.

Now, it seems, that problem may be more acute than we thought.

Announced last year, DirecTV Now was AT&T’s answer to Netflix and Hulu. AT&T initially sought to drive aggressive adoption by offering deep discounts, and it bundled it with unlimited data plans for cellphone users.

While those efforts have helped offset losses in DirecTV’s main satellite-based service, it’s that traditional TV package that remains the most lucrative product for providers. Streaming apps don’t do as much to bolster the bottom line — meaning AT&T would be in tough shape even if it were replacing TV subscribers on a one-to-one basis with digital app users, which it isn’t.

“DirecTV, like all of its cable peers, is suffering from the ravages of cord-cutting,” said industry analyst Craig Moffett in a research note this week. Moffett added that while nobody expected AT&T’s pay-TV numbers to look good, hardly anyone could have predicted they would look “this bad.”

The outlook doesn’t look much healthier for the rest of the television industry. Over the past year, cable and satellite firms have collectively lost nearly 3 million customers, according to estimates by market analysts at SNL Kagan and New Street Research. The number of households with traditional TV service is hovering at about the level it was in 2000, according to New Street’s Jonathan Chaplin, in a study last week.

(New Street Research)

Other analysts predict that, after factoring in AT&T’s newly disclosed losses, the industry will have lost 1 million traditional TV subscribers by the end of this quarter.

For AT&T, the decline in traditional DirecTV customers puts more pressure on the company to shore up its online products — especially if the traditional product continues to falter.

That’s where the company’s proposed acquisition of Time Warner may come in. With control of franchises like Warner Bros. and CNN, AT&T could seek new ways of making money that boost its fortunes in video. That deal is still awaiting approval by the Justice Department.

AT&T declined to comment, but last week, chief executive Randall Stephenson told Vanity Fair that the company hopes to “change the economics” of television with the deal, driving prices down so that it can “get customers who’ve opted out [of pay-TV] back into the ecosystem.”

Source: ‘The ravages of cord-cutting’: AT&T’s race against time to save its TV business – The Washington Post

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