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Why Is Raymond James Positive on AT&T’s DIRECTV NOW Service?

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Mar. 18 2019, Published 7:37 a.m. ET

AT&T’s pay-TV customer base 

AT&T (T) has been facing significant declines in its pay-TV business, and it lost 403,000 satellite TV customers—more than the expected 328,000—due to cord cutting in the fourth quarter. Consumers nowadays prefer OTT (over-the-top) video streaming services, which are provided by streaming giants such as Amazon Prime (AMZN) and Netflix (NFLX). This shift is hurting those companies with satellite TV offerings.

Other traditional pay-TV companies Comcast (CMCSA) and Charter Communications (CHTR) had also lost 19,000 and 36,000 residential video customers, respectively, as of the end of December 31, 2018.

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AT&T’s focus on DIRECTV NOW

Amid a falling number of pay-TV subscribers, AT&T is making efforts to win customers with its streaming service offering, DIRECTV NOW. However, AT&T lost 267,000 DIRECTV NOW customers in the fourth quarter compared to its 368,000 net customer additions in the previous year’s quarter, as the company stopped its introductory promotional plan to save on costs and reduce its debt levels. As many as 500,000 DIRECTV NOW users were taking advantage of the $10 per month promotional offer in 2018.

Nevertheless, Raymond James analyst Frank Louthan believes that the profits from DIRECTV NOW are likely to increase going forward, as its costs have reduced. AT&T has been working on reducing content for its OTT streaming service to best suit its customers’ needs. The telecommunications company has also recently raised the subscription prices for DIRECTV NOW plans. Lower costs with limited content, along with higher monthly prices, are likely to boost DIRECTV NOW’s profits.

Like AT&T’s DIRECTV, Hulu’s live TV service and Netflix have also raised their monthly subscription prices recently. While Hulu has raised the cost of its on-demand live TV subscriptions, it has reduced the monthly rates of its basic on-demand offerings. Netflix has also increased its subscription prices by 13%–18% for US subscribers. Hulu is owned by the Walt Disney Company’s (DIS) ABC, Comcast’s NBCUniversal, 21st Century Fox (FOXA), and AT&T’s WarnerMedia.

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