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Why the Viacom Deal Is Crucial for AT&T’s DIRECTV

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AT&T’s renewal contract with Viacom

AT&T’s (T) DIRECTV and Viacom (VIAB) have finally resolved their dispute and agreed on a contract renewal deal, which means that Viacom’s 23 channels will remain on AT&T’s platforms and will be available to DIRECTV customers. The renewal deal was crucial for both the parties. While Viacom wanted a contract to ensure consistent earnings, it was also vital for AT&T’s DIRECTV, which is battling to grow its subscriber base. Also, AT&T is seeking to reduce its debt levels, which have spiked to more than $170 billion due to the $85.4 billion purchase of Time Warner last year. DIRECTV has significant renewals lined up with leading programmers including CBS (CBS) and Walt Disney (DIS) in the coming months.

DIRECTV

AT&T paid $49 billion in 2015 to acquire DIRECTV, the US’s largest multichannel video programming distributor with about 24.5 million subscribers. However, the company has been struggling to grow its pay-TV subscriber base (including U-verse and satellite TV customers) amid cord-cutting, where consumers are opting for over-the-top (or OTT) video streaming services as opposed to subscribing to higher priced traditional cable or satellite connections. Services such as Amazon Prime (AMZN), Netflix (NFLX), Hulu, and HBO Now are some of the big players ruling the OTT video streaming market.

Therefore, AT&T is focusing on its streaming bundle, DIRECTV Now, which directly delivers content to subscribers via the Internet to win customers. DIRECTV Now has also recently raised the prices for its subscription plans. However, in the fourth quarter, AT&T lost 267,000 DIRECTV Now customers, as the company’s introductory offer expired.

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