Please ensure Javascript is enabled for purposes of website accessibility

AT&T's Streaming Strategy Is Still a Fragmented Mess

By Leo Sun - Updated Jul 26, 2019 at 1:37PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Launching too many streaming services at once could confuse and alienate consumers.

AT&T (T 1.84%) recently reported a 15% annual jump in revenue and a 2% dip in adjusted earnings in its second quarter, and both figures met Wall Street's expectations. However, AT&T's TV business continued to struggle -- DIRECTV Now's subscriber base contracted by 168,000 to 1.3 million, while its premium TV subscribers across all verticals declined by 778,000 to 21.6 million.

That combined loss of 946,000 video subscribers was much worse than analysts' projections for a loss of 586,100 subscribers. Once again, cord-cutters whittled away at AT&T's base of pay TV subscribers, and competition from streaming rivals such as Netflix (NFLX 5.03%) lured viewers away from DIRECTV Now.

Seven people holding puzzle pieces.

Image source: Getty Images.

AT&T's $85 billion takeover of Time Warner was intended to stop that bleeding. But more than a year after that deal closed, AT&T's streaming strategy remains a fragmented mess of disembodied services. Can the company get its act together in time?

What is AT&T's streaming strategy?

Back in 2006, AT&T started bundling together cable TV, pay-per-view programs, internet, and phone services together in a broadband bundle called U-verse. In 2015, AT&T acquired satellite service DIRECTV for $49 billion to become the country's biggest pay TV provider.

In 2016 it split its internet and phone services from U-verse, which remained its pay TV platform. It also launched DIRECTV Now, a new streaming platform for DIRECTV's cable channels. The following year, it introduced a unified cloud-based DVR for U-verse and DIRECTV Now content.

At the time, AT&T believed that its scale, bundling strategies, and the inclusion of satellite channels, IPTV, and streaming platforms would widen its competitive moat against OTT (over-the-top) streaming platforms like Netflix. However, that grand plan still didn't stop AT&T's subscribers from cutting the cord.

Realizing that it needed more content to counter Netflix, AT&T acquired Time Warner, the parent company of HBO, Warner Bros., and a myriad of cable channels like CNN, TBS, TNT, and the Cartoon Network. Prior to AT&T's takeover, HBO already offered two streaming services, HBO Go and HBO Now, which provide streaming access to the network's content. The only difference is that HBO Go is a free service for existing cable subscribers, while HBO Now doesn't require a cable subscription.

After the acquisition closed, AT&T introduced a third stand-alone streaming service, HBO Max, which will add WarnerMedia content to HBO's content in a bigger bundle later next year. It also launched Watch TV, a streaming bundle of WarnerMedia's cable channels, as well as DC Universe, a streaming bundle of Warner Bros. DC Comics shows, movies, and digital comics. But that's not all -- it recently stated that it would launch another "AT&T TV" service, which might come with an Android set-top box, in "select markets" in the fall.

A man watches streaming video channels on a tablet.

Image source: Getty Images.

Why can't AT&T launch a single unified service?

AT&T likely believes that all these streaming services can reach different target audiences. It also stands to make more money by selling these services separately rather than in a single bundle:

Streaming service

Price

DIRECTV Now

$50-70 per month

HBO Now

$15 per month

HBO Max

TBA

Watch TV

$15 per month

DC Universe

$8 per month, $75 per year

AT&T TV

TBA

Source: Company websites, as of July 26, 2019.

However, some of these services clearly overlap and cannibalize each other. Watch TV, which offers over 35 channels, might seem like a better deal than DIRECTV Now, which offers just over 50 channels. However, DIRECTV Now also includes HBO, which cannibalizes its new HBO streaming services.

In my opinion, it would be smarter to bundle DC Universe into the company's other services instead of running it as a stand-alone platform. Disney (DIS 3.69%), for example, won't launch all of its Marvel content in a separate streaming service -- it's wisely using it to craft a cohesive lineup of movies, shows, and original content for its streaming platform Disney+ later this year. More importantly, Disney will undercut AT&T, Netflix, and other competitors by pricing its service at just $7 a month.

AT&T needs to get its act together soon

Instead of confusing customers and investors with a scattershot streaming strategy, AT&T should launch a single unified service with clearer tiers, and use shrewd bundling and zero-rating strategies (which let wireless subscribers stream videos without using up their data plans) to win back video subscribers. It also needs to aggressively pull WarnerMedia's content from competing streaming platforms.

As it stands, AT&T's streaming strategy doesn't make any sense. As an AT&T investor, I hope it gets its act together soon -- or it could keep losing video subscribers as it tosses random ideas against a brick wall.

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$20.99 (1.84%) $0.38
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$97.78 (3.69%) $3.48
Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$190.85 (5.03%) $9.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.