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AT&T's DIRECTV NOW Exceeds 1 Million Subscribers, OTT a Boon

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AT&T Inc (T - Free Report) is reported to have reached more than 1 million subscribers in DIRECTV NOW, its over-the-top (OTT) online streaming service.

AT&T’s subscriber gain marks a major achievement in the intensely competitive industry, amid cord-cutting. The company reported a net gain of approximately 0.213 million DIRECTV NOW connections, since Sep 30, 2017.

The news came as a blessing for the company at a time when it is facing strong administrative and political oppositions in relation to the pending $85.4-billion merger with Time Warner Inc (TWX - Free Report) . The companies have recently extended the deadline of their deal to Apr 22, 2018 to receive the requisite regulatory approvals pertaining to the closure of the merger.

AT&T’s DirecTV Now

The U.S. telecom behemoth has been undertaking measures to promote video streaming services. Launched on Nov 28, 2016 with an introductory promotional offer of 100 channels for $35 per month, DIRECTV NOW has been performing favorably. The OTT service helped the company gain 25,265,000 video connections as of Dec 31, 2016. Moreover, total revenues at the Entertainment Group Segment grossed $13,206 million, up 1.6% year over year (post the DIRECTV acquisition).

In March 2017, AT&T gifted free HBO for a year to old and new subscribers of DIRECTV NOW service, along with a free Apple Inc. (AAPL - Free Report) TV streaming device for three months of prepaid service. In June 2017, AT&T decided to offer a free Roku Premiere set-top box to customers when they prepay DIRECTV NOW for two months.

We believe that the promotional plans have helped the company maintain customer addition momentum, evident from the last two quarterly results. In second-quarter 2017, AT&T reported a total an addition of 152 DIRECT NOW connections, taking the total to 0.491 subscribers. In third-quarter 2017, the company’s DIRECTV NOW connections were 0.787 million with a net addition of296,000 customers.

AT&T plans to upgrade DIRECTV NOW in early 2018 with internet video storage, 4K quality video, additional movies and TV titles as well as personalized viewing recommendations.

While AT&T continues to benefit from video streaming services, the company is eventually losing hold in the satellite TV and U-verse TV services. In second-quarter 2017, AT&T lost 195,000 U-verse customers and 156 satellite TV customers. In third-quarter 2017, the company lost 251,000 satellite TV and 134,000 U-verse TV customers.

Rivals’ Position

DISH Network Corp’s (DISH - Free Report) Internet TV service — Sling TV — reported approximately 1.7 million subscribers in third-quarter 2017.  Per sources, net subscriber addition of Sony’s PlayStation Vue was 455,000, YouTube TV’s was at 325,000, Hulu’s live TV service was 150,000 and FuboTV’s was around 100,000.

Bottom Line

The U.S. pay-TV industry is facing challenges from online video streaming providers posing significant competitive threat. Video offering, which represents the core business function of cable-TV operators, is losing popularity.

The industry has been losing subscribers to the online video streaming providers such as Netflix, Hulu.com, YouTube etc. because of their cheap source of TV programming. Per a FierceCable report, traditional pay-TV services, including cable and satellite, lost 1.2 million customers in third-quarter 2017, thanks to cord cutting. (Read more: Pay-TV Subscriber Loss Rises in Q3, Cord Cutting Still a Woe)

Pay-TV operators are planning to revamp their business model to keep their market share intact. In order to cope with the loss and remain competitive in the market, pay-TV operators have started offering Internet-TV services with selected TV channels at cheaper rates.

Zacks Rank & Price Performance

Currently, AT&T is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past month, the stock has returned 10.5% compared with the industry’s rally of 11.7%.

 

 

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