Moffett Casts More Doubt on Value of DirecTV Now Subs

Sub result ‘must be judged a disappointing one’ from a value creation standpoint, analyst says
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Though DirecTV Now subs gained in Q4 helped to bring balance to AT&T’s declining traditional pay TV sub base, the true value of the new OTT-TV service remains questionable, a top industry analyst believes.

“Beauty is in the eye of the beholder, and it is self-evidently better to have an OTT business that is successful in acquiring customers than to have one that is not,” MoffettNathanson’s Craig Moffett wrote in a note issued Friday. “Still, from a value creation perspective, this result must be judged a disappointing one.”

Moffett’s blog post – titled AT&T Pre-Announced Subscriber Metrics: Beauty is in The Eye of The Beholder -- arrived soon after AT&T filed an 8-K pre-announcing Q4 subscriber results, including word that AT&T added more  than 200,000 video subs in the period, “entirely driven” by DirecTV Now, the OTT-TV service that launched in late November.

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Moffett has been critical of the customer lifetime value of DirecTV Now, estimating that it was a loss of $355 on the original $35 per month price that AT&T noted prior to the official launch, compared to a customer lifetime value of nearly $2,500 for a traditional satellite TV sub. AT&T, meanwhile, hasn't revealed all its cards yet, holding that the new online platform will deliver value in multiple ways -- not just in subs for DirecTV Now -- because it will serve as the “foundation” of how the company will deliver video services in the future.

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AT&T offered its “Go Big” 100-plus channel tier for $35 per month under a promotion that ended earlier this month for new subs, and also offers other plans. Moffett said he’d be “hard pressed” to believe that many DirecTV Now subs who came in the door in Q4 were for the service’s other tiers, such as “Just Right” ($50/month for 80+ channels) or “Live a Little” ($35/month for 60+ channels) when presented with the original Go Big offer.

RELATED: DirecTV Now to Drop $35 Promotional Price for ‘Go Big’

“Reporting the traditional video and OTT together in a single “video subscriber” metric may be a useful convenience, but the value of a DirecTV and DIRECTV NOW subscriber is not remotely the same,” Moffett wrote. “The value erosion just from the positive net additions of DIRECTV NOW subscribers likely exceeds $70M.  Any foregone subscribers from the traditional platform would represent a much larger value loss.”

He also wondered if some of the early technical issues and outages that have hit DirecTV Now in its early days might also cause churn to be higher than what the firm had initially forecasted (2.8%).

AT&T shares were up 52 cents (1.27%) to $41.52 each in mid-day trading Friday.