Streaming Killed the Video Star

AT&T's acquisition of DirecTV and TimeWarner is forcing price hikes that are driving customers away at a rapid clip.

Motherboard reports that “AT&T’sMega Mergers Are Going Poorly, And You’re Footing the Bill.”

A series of major mergers was supposed to transform AT&T from a stodgy old phone company into a slick online video and advertising juggernaut. Instead, customers are headed for the exits as AT&T hikes prices in a bid to pay down the company’s soaring merger debt.

AT&T’s $67 billion acquisition of satellite television provider DirecTV in 2015 not only eliminated a competitor, the combined weight of the two companies gave AT&T greater leverage in programming negotiations. Last year’s $86 billion acquisition of Time Warner gave AT&T ownership of essential, must have programming like HBO, providing an additional competitive advantage.

AT&T executives proclaimed the mergers would bring “a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.” But some Wall Street analysts at the time expressed concern that the debt incurred from the company’s mergers would make that goal untenable.

It’s now looking like those Wall Street analysts were right to worry.

AT&T’s fourth quarter earnings, released on Wednesday, weren’t pretty. The company lost a whopping 403,000 DirecTV satellite subscribers in a single quarter. And while AT&T still serves 19.22 million satellite TV customers, more than 1.4 million DirecTV customers have fled the satellite TV provider in just the last two years.

Customers making the switch from cable or satellite TV to digital options like Netflix—often called cord cutting—has hit numerous TV providers hard as customers flee to modern streaming alternatives. Studies have shown these defections are largely driven by skyrocketing pay TV rates, though the industry’s historically-awful customer service also plays a role.

In 2016 AT&T launched its own streaming video service: DirecTV Now, at a less expensive price point than the company’s traditional cable TV offerings. But things aren’t going quite as AT&T planned there, either. According to AT&T’s earnings breakdown, AT&T lost 267,000 DirecTV Now subscribers last quarter, or a whopping 14 percent of its streaming subscriber total.

While the story is ostensibly about AT&T’s business practices, they’re an exemplar of the industry writ large. Content quality and availability has exploded over the last fifteen or twenty years but it has gotten increasingly expensive—and challenging—to access. Buying up DirecTV and TimeWarner made sense in this environment, although taking on so much debt to do it was likely a mistake.

I’ve remained a DirecTV customer over the years, out of both inertia and habit. But I also subscribe to Netflix, Amazon Prime, and YouTube. And pay for both broadband Internet and unlimited cellular data. While within my financial means, it’s nonetheless absurdly expensive on a monthly basis.

At the same time, I don’t actually watch as much video content as I used to, since parenting takes up much of my leisure time. Further, with the exception of college and pro football—and the occasional breaking news coverage—I don’t watch anything live. I suspect I could live without it.

FILED UNDER: Economics and Business, Entertainment
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Neil Hudelson says:

    But I also subscribe to Netflix, Amazon Prime, and YouTube. And pay for both broadband Internet and unlimited cellular data. And pay for both broadband Internet and unlimited cellular data. While within my financial means, it’s nonetheless absurdly expensive on a monthly basis.

    You’ll be happy when you pull the plug. I pay for Amazon prime, Hulu, Netflix, and HBO. Total bill: about $40 a month ( calculating a percentage of my Amazon prime bill since I primarily am a member for the two day shipping). With broadband add in another $70 month. I switched my family’s cell phone service from ATT to straight talk, which uses the exact same ATT network but only charged $50 a month for unlimited everything.

    Total savings: about $250 a month. I buy a bottle of 18 year single malt every other month with the savings and I’m still coming out $2,000 richer per year.

    Do it for the whisky, James.

    10
  2. Michael Reynolds says:

    Time Warner and AOL. They never learn. They see a way to be CEO not of a huge corporation, but an even huger corporation. They’ll be even more powerful and more important and thus more worthy and better than everyone else. That’s why these mergers take place. The impetus is power and position, the economics aren’t even secondary, they’re just a thin rationalization for some megalomaniac to acquire more power.

  3. charon says:

    I have DISH with a really big package plus most premium channels exclusive of HBO.

    DISH no longer has HBO because ATT demanded about 2 months ago that DISH guarantee some number of subscribers, DISH refused. I suppose when Westworld comes back I can temporarily subscribe to the HBO streaming app for its run.

    I have so much stuff stored to my DISH DVR and its connected external drive that moving not practical plus I don’t like the idea of being bullied by DirectTV anyway. So, bye bye HBO, it’s been fun.

    I need a satellite (or cable) even for the local channels, too far into the exurbs for any over-the-air to be even available.

  4. Just nutha ignint cracker says:

    There is a reason that Comcast mocked the original phase-one merger (AT&T and DirecTV) as

    the moment no one has been waiting for.

  5. Kathy says:

    As you grow older and wise (or in my case, just wiser), you realize two things:

    1) You’ll never be able to see everything that’s on TV which appeals to you.

    2) You don’t really need to see anything on TV that appeals to you. Admit to yourself that you want to.(*)

    The second reason is why I suspended Netflix for over a year, until they put up the third season of “Rick and Morty.” Having binged it in two days (ten episodes, 22 minutes each), I may keep the service for a few months to see a few things which seem interesting, then I expect I’ll cancel it again until season 4 of “Rick and Morty” is up (which hasn’t even premiered on cable yet).

    In Asimovian terms: it’s not food or drink. it may be uncomfortable to do without, but it won’t kill you.

  6. Blue Galangal says:

    @Neil Hudelson: We just cut the cord in December and we’re saving about $200/mo even with our “splurge channels” on Amazon Prime and Sling. I don’t know why we waited so long.

  7. Joe says:

    @Kathy:

    As you grow older and wise (or in my case, just wiser)

    I am your portrait of Dorian Gray. Pray for my continued health.

  8. Kathy says:

    @Joe:

    More of a case of being as old as I feel. I just don’t feel it.

    besides, I quit counting my age when I turned 18. That’s legal age where I live. I figured there was no point in keeping track after that.

  9. Stormy Dragon says:

    I’d just like to point out that AT&T told the federal courts that the AT&T/Time Warner merger would improve competition by allowing them to lower prices, and then less then two months later jacked prices up, yet has received absolutely now punishment for perjury.