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Three ways AT&T's management of DirecTV led to disaster
AT&T had such high hopes for DirecTV when it bought it. Six years on, the service is 40% smaller, and the company is grateful to see the back of it. Here are three key things the company failed to manage that led to disaster for DirecTV.
AT&T's deal with TPG Capital to create a new company to house DirecTV, U-verse, and AT&T TV closed on Tuesday. How did we get here after management purchased DirecTV for $67 billion in 2015?
AT&T + DirecTV seemed like a good idea at the time
When AT&T bought DirecTV, the business was growing and riding high, challenging Comcast for the mantle of largest MVPD service in the country. AT&T was delighted to finally offer triple-play services throughout its customer base rather than within the much smaller U-verse footprint. It embarked on a massive ad campaign to its subscriber base, which helped DirecTV grow 6% in 2016 while competitor Dish Network shrank 12%.
DirecTV underperformed the market
Over the last four years, DirecTV's performance has plummeted. More than any other MVPD provider, it has driven the enormous subscriber losses in the traditional pay TV market. Consider that the number of MVPD subscribers declined by 20 million between 2016 and 2020. DirecTV alone lost 8 million over the same period. Although in 2016 it represented about 20% of all MVPD subscriptions, it shouldered 40% of the subscriber losses.
Dish Network, on the other hand, has slowed the decline of its business. It has lowered subscriber losses from 12% in 2015 to 6% last year.
What went wrong?
There are many reasons why DirecTV has suffered the biggest decline in subscribers of any MVPD. Here are my top three.
#1: DirecTV is the most expensive provider
DirecTV subscribers have consistently spent more for their service than customers of other operators. For example, in Q4 2019, the average revenue per unit (ARPU) for DirecTV was $131 a month. In the same quarter, Comcast's ARPU was $86 a month, and Dish's was $89.
As the importance of pay TV has declined among subscribers over the last few years, it is no surprise that more of those paying the most should decide to leave. Add to that; management could do nothing to deal with the high cost of the satellite service.
#2: DirecTV Now debacle confused customers
AT&T management noticed Sling TV's success and launched a vMVPD service called DirecTV Now in November 2016. Though the service initially had teething troubles, it was a tremendous deal for customers. For $35 a month, customers could get 60+ top cable channels, including ESPN, CNN, and USA. Never one to do things by halves, AT&T heavily promoted the service to wireless and broadband subscribers.
Two years after the launch, DirecTV Now reached a peak of 1.9 million subscribers. However, by then, management had soured on the product. It was helping to accelerate DirecTV satellite subscriber losses. Moreover, at $35 a month, the service was making a substantial loss on every new subscriber. AT&T stopped promoting the service, stopped all price promotions, and eventually stopped accepting new subscribers altogether.
Not surprisingly, confused DirecTV Now subscribers canceled the service in droves and did not return to DirecTV satellite service.
#3: Management was naïve about handling programmers
During AT&T's ownership of DirecTV, management became increasingly frustrated by the intransigence of TV programmers. Management wanted to create new smaller, cheaper bundles of channels to target market niches. It wanted to renegotiate fees to make them scale with the number of channel viewers. Programmers refused to play ball. Instead, they continued to raise prices ahead of inflation, putting pressure on DirecTV's bottom line.
With AT&T's heavy debt load, management started to look for a way out, which brings us to the deal with TPG Capital to spin the business out into a new entity called DirecTV.
Source: https://nscreenmedia.com/three-reasons-atts-directv-management-disaster/
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