AT&T Aims to Ease ‘Margin Pressure’ on OTT TV Services - Multichannel

AT&T Aims to Ease ‘Margin Pressure’ on OTT TV Services

Intro of cloud DVR services, additional streams per account, PPV options will help, CFO says
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From a pay TV perspective, AT&T’s Q1 results delivered some good news and some bad news.

On the good side, 312,000 subscriber gains at DirecTV Now, AT&T’s OTT TV service, more than made up for losses on the “linear” side of the house – DirecTV’s satellite TV service shed 188,000 while U-verse TV, AT&T’s managed IPTV service, actually gained 1,000 subs.

RELATED: DirecTV Now Gains Offset AT&T’s Traditional Pay TV Losses in Q1

The bad news is that DirecTV Now subs are worth less. They aren’t on long-term contracts, so they are exposed to higher levels of churn, and the margins are significantly lower than they are for AT&T’s traditional pay TV business.

But AT&T also believes that a mix of new product-enhancements underway will help to bridge that margin gap.

In addition to beta-testing a new interface that aims to improve the experience, DirecTV Now is also kicking the tires on a cloud DVR service, and options that let subs pay more to add streams to their account. Later this year, DirecTV Now will also introduce an improved VOD service and release new pay-per-view options. Further out, it hopes to bring in more revenues from advanced advertising.

John Stephens, AT&T

John Stephens, AT&T

“We do expect revenue and margin pressure as we manage through this, especially this year, but we're excited about DirecTV Now’s product improvements” that will be rolling out soon, John Stevens, AT&T’s senior executive vice president and CFO, said Wednesday on the company’s Q1 earnings call.

“We’ll see a replacement of the margins and a growth in those margins on an extremely low capital expenditure basis…so we’ll transition through that,” he added later in the call.

Stephens also pointed out that AT&T, thanks to help from the OTT bucket, has more video subscribers than it did two years ago.

“This is especially important at a time when the industry is seeing increasing pressure from customers cutting the cord,” he said. “Transitions such as this are never easy, but we have shown that we're able to do this time and time again, whether it'd be with our voice or broadband or wireless services. We don't expect video to be any different.”

Stephens didn’t have much to add about AT&T Watch, a no-sports skinny TV bundle that will be offered for free to customer’s on AT&T’s unlimited mobile plans, and for about $15 per month to anyone else.

RELATED: AT&T Eyes Launch of Sports-Free Skinny OTT TV Service: Reports

AT&T chairman and CEO Randall Stephenson alluded to AT&T Watch during antitrust trial testimony for the pending AT&T-Time Warner merger, noting that it would launch in the coming weeks.

Stephens said he’d leave it up to others at AT&T to shed more details on it. “I think the more important message is that we are willing to innovate,” Stephens said.

Turning to broadband, AT&T continues to transition off from legacy DSL, with only about 800,000 residential subscribers still using it, compared to 4.5 million about four years ago.

Stephens said AT&T’s fiber build now passes more than 8 million customer locations, and expects to reach 10 million by year-end toward a goal of 12.5 million tied to commitments from AT&T’s acquisition of DirecTV.

Those deployments and fiber builds to millions of business locations will serve as the backbone of the wired network that will support and backhaul AT&T’s shift to 5G, he noted.

AT&T’s initial 5G efforts will focus on fixed wireless broadband services using millimeter wave spectrum that requires solid line-of-sight. Stephens said AT&T is seeing speeds of 1 Gbps-plus at distances of up to 900 feet and latencies as low as 9 milliseconds in tests.

RELATED: AT&T and Mobile 5G: The 'Puck' Starts Here 

“These trials as shown in millimeter-wave is able to penetrate foliage, glass and even walls better than anticipated with no discernible signal performance impacts due to rain, snow or other weather issues,” he said. “Granted, these are early results in trial conditions, but we are excited about what we have seen so far. 

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