AT&T Is Taking An Absolute Bath On Its DirecTV Merger

from the synergies dept

So we've noted a few times how giant telecom providers, as companies that have spent the better part of the last century as government-pampered monopolies, are adorable when they try (then inevitably fail) to innovate or seriously compete in more normal markets. Verizon's attempt to pivot from curmudgeonly old phone company to sexy new ad media darling, for example, has been a cavalcade of clumsy errors, missteps, and wasted money.

AT&T has seen similar issues. Under CEO Randall Stephenson, AT&T spent more than $175 billion on mergers with DirecTV and Time Warner, hoping this would secure its ability to dominate the pay TV space through brute force. But the exact opposite happened. Saddled with so much debt from the deal, AT&T passed on annoying price hikes to its consumers. It also embraced a branding strategy so damn confusing -- with so many different product names -- it even confused its own employees.

As a result, AT&T lost 3,190,000 pay TV subscribers last year alone and roughly 7 million since 2018. Not exactly the kind of "domination" the company envisioned. Despite a $42 billion tax break from the Trump administration for literally doing less than nothing (42,000 layoffs, in fact), AT&T's now being forced to consider low ball offers for DirecTV after investors finally got tired of the company's merger-mania. As such, a company that was acquired for $67 billion (including debt) in 2015, is likely to be sold for less than a third of that:

"The telecom giant last week invited a handful of suitors into the second round of an auction of the struggling satellite-TV broadcaster, even though first-round bids had valued DirecTV at well below $20 billion, The Post has learned.

Opening bids from a coterie of buyout firms came in at around 3.5 times DirecTV’s roughly $4.5 billion of Ebitda, implying a valuation at around $15.75 billion, according to a source close to the process."

A lot of experts told AT&T it was silly to buy a satellite TV provider on the eve of the cord cutting revolution. As such it's kind of surprising to see that AT&T insiders are surprised by any of this:

"It is very, very surprising they would sell DirecTV at such a low price — that’s a serious destruction of value,” said a former AT&T executive who spoke on the condition of anonymity.

An AT&T spokesperson declined to comment."

AT&T bought a company based on antiquated tech, integrated it into a confusing array of befuddling, discordant brands, then tried to make consumers pay off the debt in the form of relentless price hikes at the peak of a massive paradigm shift in television where price matters more than ever. Yeah, totally surprising how that didn't work out.

Filed Under: cord cutting, randall stephenson, satellite tv, tv
Companies: at&t, directv

AT&T Loses Another 1 Million TV Customers As Cord Cutting (And Greed) Take A Toll

from the not-the-sort-of-death-star-we-planned dept

2019 saw a record number of consumers ditch traditional cable television. 2020 was already poised to be even worse, and that was before a pandemic came to town. The pandemic not only sidelined live sports (one of the last reasons many subscribe to traditional cable in the first place), it put an additional strain on many folks' wallets, resulting cord cutting spiking even higher.

Among the hardest hit continues to be AT&T, whose customers have been fleeing hand over fist even with AT&T's attempt to pivot to streaming video. According to AT&T's latest earnings report, the company lost yet another 954,000 pay TV subscribers -- 886,000 from the company's traditional DirecTV and IPTV television offerings, and another 68,000 customers from the company's creatively named AT&T TV Now streaming video platform. All told, the losses left AT&T with 18.4 million video customers, including both Premium TV and AT&T TV Now, down from nearly 25.5 million in mid-2018.

That's a fairly amazing face plant for a company that spent more than $150 billion on megamergers (DirecTV in 2015, Time Warner in 2018) in a bid to dominate the pay TV sector. The problem is the deals saddled AT&T with an absolute mountain of debt, which the company then attempted to extract from its customers in the form of relentless price hikes. During an economic crisis and pandemic:

"Higher prices helped drive the customer losses. As it has in past quarters, AT&T said its practice of giving out fewer promotional-pricing deals contributed to the customer losses for AT&T TV Now. AT&T said the Premium TV loss was "due to competition as well as lower gross adds from the continued focus on adding higher-value customers."

While AT&T executives are trying to pretend this was all part of some master strategy to only retain higher-revenue subscribers, this is absolutely not the sort of sector domination company executives originally envisioned. The entire point of releasing a cheaper streaming TV service is to lure cost-conscious customers fleeing traditional cable. Raising rates relentlessly sort of defeats that purpose. The company also managed to shoot itself in the foot with such a bizarre array of discordant TV brand offerings, it, at one point, managed to confuse the company's own employees.

Even AT&T's investors (who usually adore megamergers) balked at the company's spending spree and sloppy execution, and for months rumors have indicated that AT&T could wind up selling DirecTV for a pittance. Overall, just another day for a telecom and media sector that's utterly obsessed with mindless merger mania and growth for growth's sake, even when it makes absolutely no sense.

Filed Under: competition, cord cutting, fees, john stankey, tv
Companies: at&t

Covid-19 Just Triggered The Worst Quarter Ever For Cable TV 'Cord Cutting'

from the the-check-is-coming-due dept

2019 saw a record number of consumers ditch traditional cable television. 2020 was already poised to be even worse, and that was before a pandemic came to town. With the pandemic not only sidelining live sports (one of the last reasons many subscribe to traditional cable in the first place), while putting a strain on many folks' wallets, cord cutting has now started to truly take off. Wall Street analyst Craig Moffett, who a decade ago suggested such cable TV defectors were irrelevant, has long since changed his tune.

In his latest research note to investors, he laid out the reality for traditional cable TV providers, and it's really not pretty. It's particularly ugly for satellite TV providers like Dish Network and DirecTV:

"Traditional Pay TV subscriptions fell by a record 1.8M in Q1, the worst quarterly result on record, bringing the annual rate of decline to 7.6%, also a record. Things were particularly bad for satellite TV, where subscriptions plunged by over 1.0M for the third quarter in a row, bringing the annual rate of decline to a worst-ever 14.3% (the number would be worse still if we were to include lost bars, restaurants, and hotels temporarily suspended at Dish Network).

Traditional cable TV providers like Comcast fared "better," but it's still simply not pretty:

"Cable’s decline of 0.6M subscribers in the quarter, for annual growth of -4.0%, looks positively gentle by comparison. But it, too, was the worst on record. At 63% of occupied households, traditional Pay TV penetration has reached a level not previously seen since roughly 1995. There are now as many non-subscribing households (46M) as there were Pay TV subscribers in 1988."

Granted many of these companies had more than a decade to get ready to combat this very obvious trend, and instead decided to double down on all the things that drive users to the exits: high prices, endless price hikes, inflexible cable channel lineups, and terrible customer service. The idea for many broadcast and cable execs has been to milk this dying cash cow for as long as was possible before actually attempting to adapt. We've now reached the point where doing nothing simply isn't going to work.

But even the companies that made a fleeting effort to pivot to cheaper, more flexible streaming services (AT&T, Sling TV) got pummeled last quarter:

"The vMVPDs, once viewed as the last line of defense for cable networks, imploded in Q1,” Moffett writes. Collectively, he estimates they lost 341,000 subscribers in the quarter. “Sony’s PlayStation Vue service shut down at the end of January. Their ~500,000 subscribers appear to have gone ...nowhere. AT&T TV Now (formerly DirecTV Now), Sling TV, and (we believe) fuboTV all lost subscribers. Disney’s Hulu Live TV appears to have hit a wall in the wake of multiple price increases, growing by only ~100,000 subscribers in Q1, an abrupt deceleration from their recent torrid growth. Even YouTube TV, by far the fastest-growing of the lot, couldn’t pick up all the slack. Total subscriptions, including both traditional and vMVPDs, are now shrinking by 5.3% per year. Yes, that, too, is the worst ever."

There's a number of reasons for that. AT&T, for example, tried to jack up the price of its streaming video services to recoup massive debt incurred by its recent bout of mindless megamerger mania. As the streaming sector began offering users too many siloed exclusives, the confusion and cost of hunting and pecking drove many users to piracy. Many other users simply migrated to over the air antennas. And that's before you get to the fact that many younger viewers don't see the point of cable TV in any form, and prefer simply watching YouTube or Tiktok for free.

To be clear, the cable TV sector still laid claim to 83 million subscribers in the United States by the end of last year. And many of the biggest companies (like AT&T, Verizon, and Comcast) should be fine, given they can just jack up the price for broadband thanks to regional monopolies over internet service. But with the dearth of sports and consumer financial headaches likely persisting throughout 2020, downplaying or ignoring one of the biggest trends in TV history is no longer an option for some of the least liked companies in American industry.

Filed Under: cable tv, cord cutting, covid-19

US Cable Companies Lost 5 Million Paying Customers Last Year Alone

from the denial-isn't-just-a-river-in-Egypt dept

For most of the last decade, cable and broadcast industry executives insisted that "cord cutting" (users cancelling traditional TV and moving to antennas or streaming) either wasn't real or was only something losers did. Many of the analysts and viewer tracking firms (like Nielsen) -- which have a financial stake in telling cable and broadcast executives what they wanted to hear -- were quick to happily parrot these denials.

Now that it's impossible to deny the trend, most of those folks have become notably quiet.

This week Leichtman Research took a final look at 2019 earnings reports for the biggest cable companies and it wasn't particularly pretty for the sector. All told the top pay TV providers in America, representing about 95% of the market, lost about 4,915,000 net video subscribers in 2019--compared to a loss of 1,585,000 subscribers in 2018. Satellite TV providers were particularly hard hit last year.

Among the biggest hit was AT&T's DirecTV, which lost 3,190,000 subscribers last year alone. Most of those losses were courtesy of the rate hikes AT&T imposed on its customers to pay off the debt it accumulated after spending $150 billion on megamergers in the last five years alone (DirecTV in 2015, Time Warner in 2019). Instead of dominating the space as AT&T had hoped, it "enjoyed" a revolt from customers and investors alike.

But things weren't much better for the cable sector, which collectively lost 1,560,000 video subscribers in 2019 -- compared to a net loss of about 920,000 subscribers in 2018. Or the nation's traditional phone companies like Verizon and AT&T (who also offers TV service via IPTV), who lost 665,000 subscribers last year -- compared to 245,000 the year before. Even the companies that tried to at least somewhat get ahead of the trend (like AT&T) wound up paying the price, even losing subscribers from their new streaming TV platforms due to rate hikes.

It's always been pretty clear that most cable TV providers intend to ride this cash cow until its last gasp before doing obvious things like shoring up historically terrible customer support or actually competing on price. And to some degree, you can understand why. The traditional pay TV sector is still home to a whopping 86.2 million subscribers with the top seven cable companies still laying claim to 45.8 million video subscribers, satellite TV services 25.4 million subscribers, and the top telephone companies 8.3 million subscribers.

And while streaming will continue to slowly erode these totals, these companies all have an ace in the hole: their growing monopolies over broadband. The lack of US competition means that as margins on TV get tighter, they can simply squeeze their captive broadband customers tighter, something that usually manifests in not just vanilla price hikes, but the steady growth of bullshit fees, usage caps, and utterly arbitrary and unnecessary usage caps and overage penalties.

Filed Under: cable, cord cutting, tv

Smaller Cable Companies Are Giving Up On Cable TV Altogether

from the unsustainable dept

As giants like Amazon, Apple, AT&T, and Comcast rush to dominate the TV market, smaller cable providers are suddenly finding themselves unable to compete. Pay TV margins have been tightening for years, and without the kind of scale enjoyed by companies like AT&T/DirecTV/Time Warner or Comcast/NBC Universal, smaller cable companies have warned for years how they would probably have to ditch the TV business and focus exclusively on broadband.

Some companies, like Kansas cable TV provider Rainbow Communications, are finally following through on those promises. The company sent a letter to its customers this week (hat tip, Cord Cutters News) informing them they'd be shuttering their cable TV operations, and suggesting impacted customers should probably go check out this whole streaming video thing:

"You’ve probably heard about streaming TV. Streaming is watching TV over your internet connection, and now with new applications, you can stream shows on television sets. While Rainbow will not be your TV provider moving forward, your new digital picture and sound can be delivered over our Rainbow internet service. When you combine our high-speed internet with HD-picture, the clarity will surprise you.”

It's the beginning of what's expected to be a fairly ugly shake up as the long-unsustainable pay TV sector transitions from "wink wink" competition to a new streaming video fist fight. Gone are the days where cable TV providers could neglect customer service and charge $130 a month for a bundle of 500 channels nobody actually watched. Under the new reality, margins are tight as hell, and unless you're doing double duty as a cable provider and broadcaster, you're not going to have the scale to be able to compete with massive giants with the leverage of scale.

But good news (for them)! Because U.S. broadband is so painfully uncompetitive, most of these smaller cable companies can shift entirely to broadband, where they can raise rates largely with impunity. They can also impose arbitrary and unnecessary usage caps and overage fees, letting them both jack up the cost of broadband service, and cash in on the streaming video services they're now pushing captive broadband customers to. That same lack of competition will also let them ignore the abysmal customer service the cable sector is historically known for.

In other words, most of these companies can simply pivot from overcharging you for cable TV to overcharging you for cable broadband, while saving costs on program carriage fees and traditional cable infrastructure.

Filed Under: cable tv, competition, cord cutting, over the top, streaming, tv
Companies: rainbow communications

AT&T's Attempt To Dominate The Pay TV Sector Continues To Go...Poorly

from the not-according-to-plan dept

AT&T's attempt to buy its way to TV sector domination isn't going so well. In 2015 you'll recall that AT&T spent $67 billion to buy DirecTV, eliminating a direct competitor in the TV space. In 2018 it spent another $89 billion to acquire Time Warner, one of the biggest broadcasters in America. Both acquisitions were designed to propel AT&T toward supremacy in the TV sector. Neither acquisition is actually doing so. In fact, to recoup the massive debt incurred from both deals, AT&T started raising rates hand over fist despite the growing competitive threat posed by streaming video providers.

It's not exactly going according to plan. AT&T's latest earnings report (pdf) indicates that the company lost a whopping 4 million TV subscribers last year alone; not exactly the market domination AT&T envisioned:

Meanwhile AT&T's fixed-line broadband subscriptions, generally seen as the backup plan for users who "cut the cord" on traditional television, also continue to slowly but steadily erode:

And things aren't getting better for AT&T anytime soon.

Wall Street stock jocks are worried that the company is facing a large number of programming contract expirations this year, which will require that AT&T (read: AT&T customers) shell out even more money for the exact same programming. That's before you get to the rising tide of competitors including Disney and Apple that intend to also try and dominate the sector by throwing money at it over the next few years. Profit margins are going to drop like a stone on TV, and AT&T, still saddled with some of the highest debt loads of any company on Earth, isn't particularly well equipped for it, even with the FCC effectively in its pocket.

It's a major reason why AT&T has been facing a bit of an investor revolt lately by "activist" investors who feel like AT&T's obsession with mindless merger mania is actually harming the company's attempts to gain inroads in the TV sector. AT&T hopes to rekindle some growth by adding yet another new streaming TV service to its already insanely confusing roster of video brands, but there's no indication that the company's path will get easier anytime soon.

Filed Under: competition, cord cutting, pay tv
Companies: at&t

Comcast Says It Will Respond To Cord Cutting In 2020 With...More Price Hikes

from the that's-not-how-this-works dept

Cord cutting continued to set records in 2019 despite years of cable and broadcast executives trying to claim the trend wasn't actually happening. Now that they're finally acknowledging the threat is real, many of these same executives are doubling down on the kind of behavior that brought them to this point in the first place.

For example, Comcast's Q4 earnings report released this week shows the company saw a 3.2% drop in traditional cable TV subscribers in 2019, double the 1.6% loss rate the company saw 2018. How does the company plan to tackle the customer exodus driven by ramped up streaming competition from the likes of Disney, Apple, and others in 2020? Why even more price hikes, of course:

Keep in mind, US consumers already pay some of the highest rates for fixed and mobile broadband in the developed world. These latest price hikes are occurring the same time Comcast's cable division CAPEX dropped 10.5% in 2019. You know, the exact opposite of what the Ajit Pai FCC promised when it obliterated FCC authority over telecom providers at lobbyist behest.

This isn't the first time Comcast has made it clear that its strategy to tackle the rise in streaming competition and fleeing users is to just double down on price hikes. Company executives have noted several times that any money they lose on television, they simply make up for on the broadband side:

"Watson added that while Comcast tries to keep customers through a variety of programming and broadband packages, but added that when a customer leaves as a result of price, the impact is actually favorable to the company. “We segment the marketplace,” Watson said, adding that when a low-end customer drops video service over price, but keeps their broadband service – at a higher monthly charge – the company makes out better.

Oddly the reason this is possible is something most analysts and trade magazines don't much like to talk about for whatever reason: Comcast's growing monopoly over broadband and its stranglehold over state and federal regulators and lawmakers.

As US telcos give up on residential broadband, they're giving giants like Comcast and Spectrum an even greater monopoly over faster broadband across massive swaths of the country. So when users in those markets cut the TV cord and move to streaming, Comcast's free to sock them with rate hikes, nonsensical fees, and bogus usage caps and overage surcharges. Because there's no competition and currently no federal regulators looking out for consumers, there's no penalty for this behavior. The telecom lobby has even tried to ban states from stepping in to fill this vacuum and protect users from monopoly harm.

While 5G is often bandied about as a free market panacea for what ails the US telecom sector (ie "we don't need to fix this problem because amazing wireless will soon arrive to save the day"), many of these same problems plague wireless as well (regulatory capture, competition eroding consolidation, regional fiber/backhaul monopolies, etc.). In short, without healthy competition or functioning regulatory oversight you shouldn't put too much stock in giants like Comcast being forced to give much of a damn anytime soon.

Filed Under: cable tv, competition, cord cutting, internet access, price hikes
Companies: comcast

Verizon Kills Cable Contracts As TV Sector Finally Starts Listening To Cord Cutters. Kind Of.

from the the-customer-is-always-right dept

Remember cord cutting? The trend that cable and broadcast execs and countless sector analysts spent years claiming either wasn't real, didn't matter, or would most certainly end once Millennials started procreating? It set records in 2019, and despite some wishful thinking among cable TV executives, there's no real sign that the trend is going anywhere thanks to the continued rise of new streaming services.

While many cable companies have simply doubled down on the behavior that brought them to this point (price hikes and comically terrible customer service), there are some indications that other companies are finally starting to listen. Like Verizon, which last week introduced a number of new internet and cable TV packages that eliminate the long-term contract entirely, and at least make a fleeting effort to cut down on hidden fees:

"Customers don’t want to be forced into bundles and contracts. They don’t want surprises on their bill at the end of the month,” said Frank Boulben, SVP of consumer marketing and products at Verizon."

Yes, incredible insight. Under Verizon’s new "mix and match" plans, users can subscribe to three FiOS broadband options: 100 Mbps for $40 per month, 300 Mbps for $60 per month, and a gigabit connection for $80 per month. It's also offering a number of cheaper ($50 and $75) options for cable TV, as well as bundling in YouTube's Live YouTube TV service for $50 a month for those interested.

Verizon is, in effect, getting rid of both contracts and contract promotions, shifting more toward advertising the actual price, something consumers have been bitching about for the better part of two decades. Of course Verizon wouldn't be Verizon without at least a dash of disingenuous nonsense and hypocrisy, such as claiming you're getting rid of annoying fees before saddling your users with... annoying fees:

"Verizon’s new option includes a $12 per month set top box rental fee and a $15 per month router fee for some subscribers, tacking an extra $27 on to the final bill. Users also have to sign up for autopay and paperless billing to take advantage of the offers."

The new offers also seem geared largely to lure in new customers. Existing customers, like Ars Technica's Jon Brodkin, tried to sign up for the new options only to find he wasn't allowed to sign up for them at all. Even if he had been able to get the new bundles, he found that the final offering would have not only come with obnoxious fees (like Verizon's misleading "broadcast TV fee," the final bill would have been higher than what he was already paying Verizon under his existing subscription.

So on one hand it's nice to at least seem companies like Verizon acknowledge that they should start listening to consumers, even if the end product of that revelation still leaves much to be desired.

Filed Under: cable contracts, cord cutting, tv
Companies: verizon

TV Ratings Sag As Cord Cutting Continues To Surge

from the hard-to-have-any-sympathy dept

By all accounts cord cutting continued to set records in 2019, a trend that (despite some baseless claims to the contrary by industry executives) is only expected to accelerate this year. Customers continue to grow tired of paying their local cable TV provider hundreds of dollars per month for giant bundles of channels they don't watch, paired with some of the worst customer service of any industry in the States (a continued, impressive claim given the banking, airline, and insurance industries exist).

Despite years of the industry claiming cord cutting was "no big deal" or entirely nonexistent, the numbers from last year couldn't have been any clearer:

The problem is also being clearly reflected by cable TV and broadcast TV ratings. Outside of Fox News, cable TV news viewership continues to slowly but surely erode, with MSNBC losing 3% and CNN losing 9% of their viewers in 2019 (Fox News saw 3% growth). Traditionally well performing networks like USA saw notable viewership declines as high as 18% on the year:

"USA, which was the most watched cable network for almost a decade, slipped another spot from No. 4 last year to No. 5 in total viewers (-18%). In adults 18-49, it remained No. 2 behind Fox News but was down 16%. AMC was down 22% in viewers as its flagship drama The Walking Dead is starting to show its age FX was down 21%, TBS 17% and TNT 15%.

The biggest hits continue to come for channels that focus on kids' programming, as families continue to flock to on demand content from the likes of Netflix (and now Disney+):

"Disney Channel, a former No. 2 basic cable network, posted the largest year-to-year viewership decline, 30%, to drop to No. 28, with Disney Jr. logging the second biggest year-to-year drop, 25%. Those are linear ratings declines as young viewers flock to the Disney Channel’s app or website to watch its shows."

Since so many cable TV providers are also broadcasters (Comcast NBC Universal, AT&T Time Warner) it wouldn't be too hard to keep this trend in check by improving abysmal customer service and actually competing on price. Instead, most cable TV executives continue to push their luck and raise rates, or focus on things only certain to annoy consumers further (like Charter CEO Tom Rutledge's relentless whining about password sharing). That's in large part because most of these executives know their monopolies over broadband insulate them from real harm, allowing them to jack up the cost of broadband connections to counter any revenue losses on the TV side of the equation.

Filed Under: cord cutting, tv ratings