AT&T (T 2.15%) reported 897,000 premium TV subscriber losses in the first quarter to go along with its loss of 138,000 over-the-top subscribers. The combined total makes it the third consecutive quarter in which AT&T's lost over 1 million video subscribers.

The subscriber losses are absolutely staggering compared to its biggest competitor, Comcast (CMCSA -1.10%). Comcast lost 733,000 video subscribers in all of 2019, but management did note losses will increase this year during its fourth-quarter earnings call.

To make matters worse, AT&T's management thinks there's a good possibility its subscriber losses will get worse throughout the rest of the year due to the economic effects of COVID-19.

A pair of scissors about to cut through a coaxial cable

Image source: Getty Images.

Businesses don't need TV subscriptions if they're not open

AT&T will see a lot of cord-cutting come from businesses this quarter as doors remain closed, and it doesn't look like many will open to the general public for some time. CFO John Stephens said he expects "lower revenues from commercial locations such as hotels, bars, and restaurants."

AT&T doesn't break out how many of its customers are businesses versus residential. About 4.5% of Comcast's video subscribers are businesses, though, so the cord-cutting effect could be substantial. It's unclear whether those customers will resubscribe when businesses ramp back up, or if they'll opt for a competing service.

The industry loss is temporary -- can you imagine going to a bar without sports on the TVs? -- but there's certainly some risk for AT&T. And even if it does win businesses back, it'll still feel the temporary pain of cancellations in the interim months.

The second half could be worse for residential subscribers

With people staying home amid the coronavirus pandemic, AT&T management says it's actually seen an improvement in cord-cutting through April. But there are a few reasons to expect cord-cutting to get worse as we progress through the rest of the year.

It's quite evident we've entered a recession, and, unfortunately, many people will face a tough time coming out of it. "One would conclude that in a stressed economic environment, there probably are going to be adjustments that people make within their lifestyle and their home," newly appointed CEO John Stankey said on AT&T's first-quarter earnings call. "So, I would expect that we may see more pressure on [cord-cutting] as we move through the year."

On top of that, pay-TV is losing its best content. Sports leagues and media company production schedules have been suspended. Nobody has announced concrete plans on when those will resume, and without them, pay-TV isn't worth close to what AT&T or Comcast charge. If you just want to watch reruns, you might as well subscribe to a cheap streaming service.

Will AT&T TV save the day?

AT&T launched AT&T TV nationwide in early March. The new service, which delivers channels over-the-top to a custom set-top-box, is a big bet for the company. 

It presents several opportunities for AT&T, not least of which is lower customer acquisition costs. Customers are expected to self-install the service, with AT&T shipping the set-top-box to customers, and customers just plugging in a few cables. This saves a lot of money on sending out technicians to install equipment and run cables through customers' homes.

It also makes AT&T TV the perfect pay-TV product for consumers that want a premium service without inviting a stranger into their home amid a pandemic. "It's a low touch product, oftentimes customer self-install, and so it matches up well to that environment," Stankey said. He's optimistic about the product for the rest of the year, and says it met expectations even with the effects of COVID-19.

Still, the secular pressure the company faces cannot be overcome by a product with a superior onboarding process. AT&T is still in for a big challenge, and investors should pay attention to what competitors like Comcast are saying about their outlook for the pay-TV business as well.