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Why AT&T Expects Positive Net Video Additions in 4Q17

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AT&T’s DIRECTV Now

AT&T’s (T) DIRECTV Now over-the-top (or OTT) is an online video streaming service that delivers content directly to users over the Internet as a substitute for a satellite or cable connection. In 3Q17, AT&T had gained 296,000 DIRECTV Now customers, which were offset by 385,000 traditional pay-TV customer losses. DIRECTV Now has around 800,000 customers as of 3Q17 and is set to see strong growth from improved services as well as bundling opportunities.

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During the Morgan Stanley Technology, Media, and Telecom Conference held on November 16, 2017, John Stephens, AT&T’s EVP and CFO, spoke about the company’s video business. Stephens appeared to be confident in near-term business trends, reiterating expectations for positive net video additions across all of its video businesses including DIRECTV Now in 4Q17. Stephens stated, “We had great results on DTV right now. We’re up to 800,000. Quite, frankly, I can tell you what, we’re already up past 900,000 today. So it continues to be successful. And we are getting those customers.”

Additionally, AT&T’s management is intending to roll out its cloud digital video recorder (or DVR) and some additional packages for its OTT product in early 2018.

Growth potential of OTT video service

There is a huge growth potential for the OTT video streaming service. As compared to the past few years, an immense number of users are opting for OTT services. The major reason for this is the high monthly bills for cable and satellite TV. As depicted in the graph above, a 2Q17 report from Digitalsmiths suggests that ~36.2% of customers pay more than $100 per month to their pay-TV service provider. As depicted in the graph above, a 2Q17 report from Digitalsmiths suggests that ~36.2% of customers pay more than $100 per month to their pay-TV service provider.

Netflix (NFLX) and Amazon’s (AMZN) Prime Video are AT&T’s other competitors in the online video streaming market. In 3Q17, Netflix gained 5.3 million customers, while Amazon gained 5.0 million US Prime customers, according to the Consumer Intelligence Research Partners (or CIRP). As the OTT video streaming service continues to rapidly add subscribers, traditional pay-TV companies are losing subscribers. Comcast (CMCSA) lost 125,000 pay-TV subscribers in 3Q17, while Charter (CHTR) shed 104,000 during the same quarter.

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