Star Wars-themed illustration of the AT&T and DirecTV logos.

AT&T expects to lose about 1.1 million TV clients within the third quarter because it faces stress from an funding group that claims AT&T’s elevated deal with the TV enterprise was a large mistake.

In an replace to shareholders yesterday, AT&T CFO John Stephens “said the company expects an incremental 300,000 to 350,000 premium video losses above the previous quarter’s premium video results,” in keeping with AT&T. Since that is an incremental improve over the earlier quarter’s loss, that can quantity to a three-month lack of greater than 1 million TV clients.

In Q2 2019, AT&T reported a web lack of 778,000 subscribers within the “Premium TV” class, which incorporates its DirecTV satellite tv for pc and U-verse wireline TV companies. With AT&T anticipating to lose that quantity of subscribers plus one other 300,000 to 350,000, the replace to shareholders suggests the Q3 loss within the class shall be between 1,078,000 and 1,128,000 subscribers. (An AT&T spokesperson confirmed to Ars {that a} projected lack of 1,078,000 and 1,128,000 subscribers in Q3 is correct.)

AT&T’s replace to shareholders attributed the anticipated loss to “aggressively managing costs with retransmission negotiations, some of which resulted in content provider blackouts; and from limiting promotional pricing.” AT&T mentioned it has been “holding a hard line in negotiations” with programmers to manage prices, however the ensuing blackouts of channels is driving TV subscribers away.

The projected loss apparently doesn’t embrace AT&T TV Now (previously often known as DirecTV Now), a web-based service that AT&T hasn’t included within the Premium TV class in its earnings stories. AT&T additionally misplaced 168,000 subscribers of DirecTV Now/AT&T TV Now within the second quarter, nevertheless it did not say how that service will fare within the third quarter.

Together with each premium TV and the streaming service, AT&T’s whole variety of video subscribers dropped from 25.four million in Q2 2018 to 22.9 million in Q2 2019. The overall would drop to about 21.eight million after the third quarter if AT&T TV Now stays regular.

AT&T wager on declining TV enterprise

The pay-TV enterprise has been struggling within the face of competitors from on-line streaming. Regardless of that, AT&T made an enormous wager on video lately, shopping for DirecTV in 2015 and Time Warner Inc. in 2018.

To get again on monitor, AT&T is banking on its new AT&T TV streaming service, which is completely different from AT&T TV Now regardless of having an almost equivalent identify. Not like AT&T TV Now, AT&T TV has two-year contracts, costs that rise robotically after a yr, charges for activation and early termination of service, a Regional Sports activities Charge, and “certain other additional fees and charges.”

It is not clear to us why clients who ditched DirecTV or U-verse can be tempted by a streaming service that recreates the annoyances and pricing construction of conventional cable and satellite tv for pc TV companies. However AT&T mentioned that in 2020, it “expects premium TV subscriber trends to improve due to far fewer customers on promotional pricing and the nationwide launch of AT&T TV, which delivers a premium streaming experience.”

AT&T mentioned its 2020 efficiency also needs to be helped by greater per-customer income as a result of it is limiting the reductions out there to subscribers.

That is not saying a lot, although. At its present tempo, AT&T may enhance the subscriber pattern considerably and nonetheless lose a whole bunch of 1000’s of TV clients every quarter.

Investor blasts AT&T TV technique

AT&T’s TV technique was criticized this week in an open letter by activist investor Elliott Administration Corp., which has a $3.2 billion stake in AT&T.

“Notwithstanding AT&T leadership’s assertions that ‘Pay TV is a very good, durable business’ when the [DirecTV] transaction was announced, the pay-TV ecosystem has been under immense pressure since the deal closed,” the investor agency mentioned. “In fact, trends are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particularly satellite, struggles mightily. Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market.”

Elliott Administration can also be skeptical of the Time Warner purchase. “[D]espite nearly 600 days passing between signing and closing (and more than a year passing since), AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner,” the open letter mentioned.

Together with debt, shopping for DirecTV price $67 billion and Time Warner price $109 billion.

The open letter mentioned that AT&T is shifting too distant from its core telecom enterprise, and it criticized the corporate for not performing as properly within the wi-fi business as Verizon. Elliott Administration referred to as for “significant operational improvements” and for the board to guage whether or not AT&T has “the right mix of leadership at the company.” AT&T ought to think about divesting DirecTV and different non-core companies, the open letter additionally mentioned.

AT&T issued a brief response, saying its administration crew and board of administrators “will review Elliott Management’s perspectives in the context of the company’s business strategy.” Nevertheless, AT&T defended its technique of assembling a “unique portfolio of valuable businesses… across communications networks and media and entertainment.”

“AT&T’s Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create value for shareholders,” the corporate mentioned.

Individually, AT&T is dealing with a class-action lawsuit alleging that it lied to buyers as a way to disguise the failure of its DirecTV Now streaming TV service.

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