AT&T gave a first look at how the pay television industry is going on in the middle of the coronavirus pandemic … and it’s not perfect. As part of its Q1 2020 earnings today, the company announced that its conventional pay television services, including DIRECTV and its newer streaming alternative AT&T TV, saw a cumulative net loss of 897,000 subscribers in the period. Meanwhile, AT&T TV Now, the over-the-top streaming service, has also lost 138,000 subscribers, after a series of price hikes.
The newest pay TV service from the group, AT&T TV, was only available nationwide in March. But despite its “streaming” existence — it ships with an Android TV-powered device to transmit TV over the internet — customers may already have caught on to the fact that it’s really just the worst of pay TV rolled up in a new distribution system.
The subscription service is costly as opposed to the over-the-top and video-on-demand services available today. It is also paid for items like activation, early termination and additional set-top boxes with fees. And for the first 12 months, the package with AT&T Internet provides every service for $39.99/month, but locks users into two-year contracts where rates go up in the second year.
AT&T’s Q1 TV subscription figures demonstrate how fast the demand for pay television is imploding. And maybe it will decline even faster now that people no longer want to risk exposure to coronavirus by making the service techs install equipment in their homes. Although the DIY implementation of AT&T TV may aid in this area, it is uncertain if the new technology in the streaming era would truly appeal widely to consumers.
AT&T finished the quarter with pay TV subscribers of 18.6 million, down from 19.5 million in Q4 when it lost 945,000 subscribers.
All of this brings even more pressure on WarnerMedia to produce HBO Max with its launch on May 27th. The new streaming channel direct-to-consumer offers all of HBO, plus original programming, as well as a library of classics, classic Television and film, fan favourites and more. But it won’t be enough to cover the missing income from high-priced pay-TV services at just $14.99 a month — just balance it.
AT&T also acknowledged today that the coronavirus epidemic has forced it to reconsider its theatrical model.
WarnerMedia just yesterday revealed the latest children’s film “Scoob! “It would bypass theaters and go straight to homes where it would be sold either for a $19.99 rent or for a $24.99 digital purchase. Later, it will have a “special online premiere” on HBO Max.
“We are rethinking our theatrical model and searching for ways to intensify efforts consistent with the pandemic’s dramatic shifts in consumer behavior,” WarnerMedia CEO and AT&T COO John Stankey said, as reported by The Wrap.
“It is hard to raise sales when the theaters are closed,” he said. “And I don’t expect a snapback from that. I think that’s going to be something we’re going to have to be building consumer trust, not just going to movies, but getting out out in public and knowing what’s going on there in general, “Stankey observed.
Overall, both sales and earnings were missed by AT&T in Q1, primarily citing impacts from coronavirus outbreak, which decreased earnings by 5 cents per share ($433 m). Gross revenue for the quarter was $42.8 billion, shy of $44.2 billion from Wall Street forecasts. Adjusted EPS was 84 cents per share, compared to an estimated 85 cents.
A drop in revenue of $600 million was due to missed ad revenues, primarily those anticipated from now-postponed live sporting events such as March Madness, as well as lower sales of wireless equipments.
AT&T’s WarnerMedia group, which comprises television networks from HBO and Turner in addition to the theatrical releases from Warner Bros., was also significantly affected by the pandemic, recording sales of $7.4 billion, down from $8.4 billion a year earlier.
“The COVID pandemic affected our first quarter by 5 cents per share. Without it, the quarter was about what we expected — strong wireless numbers covering the HBO Max investment, and delivering healthy EBITDA and EBITDA margins, “AT&T chairman and CEO Randall Stephenson said in a statement. “We have a healthy cash position, a strong balance sheet and our core businesses are stable and still produce good free cash flow — particularly in today’s climate. Given the economic effects of the pandemic, we have already changed our capital allocation plans, and have postponed all share retirements, “he added.
In addition to investing in HBO Max, the company has said it will continue to invest in 5G and broadband, two of the few bright spots in the year.
AT&T withdrew its financial guidance due to “the lack of exposure related to the pandemic and recovery of COVID-19,” it said.