AT&T’s video business took a marked turn for the worse in the September quarter, as the company reported a big increase in satellite TV subscriber losses while the growth on its new DirecTV Now streaming service slowed sharply. Satellite’s losses aren’t surprising, as satellite TV is very exposed to cord cutting. The sharp slowdown in DirecTV Now’s gains—adding 49,000 in the quarter from 296,000 a year earlier—could signal the early momentum in skinny bundles is dissipating. Investors weren’t impressed: AT&T’s stock was down 6% Wednesday.
The DirecTV Now slowdown likely reflects AT&T’s decision to reduce the number of promotions for the service, as it tries to improve its financial performance. Specifically, AT&T is looking to use customer data and reduce the number of promotions it runs for “low value, high churn” customers, said John Donovan, AT&T Communications CEO, on its earnings call.
AT&T noted it was focused on improving profitability, which is important given its mammoth $183 billion in debt. That’s a crucial point. The company increased its debt in its $85 billion acquisition purchase of Time Warner. Proving that deal was worth the price, even as the entertainment industry transitions from cable TV to streaming, is the challenge facing AT&T CEO Randall Stephenson.