AT&T Eyes Skinnier Bundles To Make Streaming Profitable

2019 is shaping up to be an important year for AT&T’s streaming video businesses.

Late in the year, the company will launch a new direct-to-consumer streaming service, one built around HBO and other content from the WarnerMedia portfolio. On AT&T’s earnings call Wednesday morning, CFO John Stephens said the company has “begun beta-testing our streaming service” and plans to “roll out trials in the first half next year.”

At the same time, while it is planning its new direct-to-consumer offering, the company is planning a “product realignment” to the rest of its video offerings, he added.

At the heart of that realignment is a move to either lower prices, or offer new packages at lower prices.

“Content is the largest and fastest-growing cost of any video offering, we are evaluating our channel lineups and taking a fresh look at how we can align content costs with the price,” Stephens said. “It is also about what our customers want, and many want smaller, value-based video packages.”

In a recent JPMorgan research note, analysts estimated that DirecTV Now loses close to $6 per subscriber per month, because content costs are higher than the price of the service.

The company will “be more discriminating about the content that is provided and the profitability of that content,” AT&T Communications CEO John Donovan added on the call.

The company also plans to make DirecTV Now simpler and more differentiated than competitors like Sling TV and YouTube TV. DirecTV Now added 49,000 subscribers in the quarter, somewhat below expectations. That's not enough to offset losses from DirecTV’s satellite TV business.

AT&T is also leveraging data it has gathered about price elasticity and customer behavior as it relates to its streaming subscribers. The company says some consumers shop seasonally for new shows (for example subscribing to HBO for “Game of Thrones,” and then cancel), and expects to tweak pricing and offerings to improve profitability.

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