Cord cutting and competition are hurting pay-TV customer base
The US pay-TV market has been losing momentum for the past few quarters with rising subscriber attrition amid cord cutting and competition from OTT (over-the-top) video streaming firms. OTT video streaming services directly provide content to users via the Internet. The growing popularity of online video streaming services has shifted users’ focus from traditional linear TV, a phenomenon known as “cutting the cord.” Companies like Amazon (AMZN), Netflix (NFLX), and Alphabet’s (GOOGL) YouTube are some dominant players in the online video streaming market.
In 3Q17, AT&T (T) saw a loss of 251,000 satellite TV customers in comparison to net additions of 323,000 customers in the corresponding quarter last year. Further, the company lost 134,000 U-verse TV customers versus a loss of 326,000 in 3Q16. The majority of the decline in the traditional TV space was due to US hurricanes. Additionally, the company tightened its credit policy for pay-TV subscribers, which also hurt subscriber numbers in the quarter.
Focus on OTT offering
Randall Stephenson, AT&T’s CEO, pointed out during the Goldman Sachs Communacopia Conference on September 12, 2017, that younger generations as well as lower-income customers prefer online video streaming services in comparison to higher priced traditional cable services.
Nevertheless, AT&T is trying every means necessary to win customers by bundling its wireless and video services. Since the DIRECTV acquisition in 2015, the company started a lower priced DIRECTV Now OTT offering, which is gaining momentum and is expected to grow further due to enhanced services in the near term. In 3Q17, AT&T added 296,000 DIRECTV Now customers. In fact, AT&T has plans to launch a next-generation software-based delivery platform, which will offer cloud DVR (digital video recorder) and other additional services related to OTT products in 2017. Further, AT&T expects this offering to boost profits of its pay-TV business given the lower acquisition and installation costs.