DALLAS -- AT&T lost more than half a million TV customers and about 83,000 subscribers to its streaming DirecTV Now service in the first three months of this year, the company reported Wednesday.
That leaves the service with roughly 1.5 million customers -- almost precisely the number it had at this time last year. Company filings show that as many as 350,000 subscribers have abandoned DirecTV Now since October, when the service hit a peak of 1.85 million customers.
But AT&T Chief Executive Officer Randall Stephenson said the company is on track with its major goals: paying down billions of dollars in debt, boosting free cash flow and stabilizing its entertainment group.
In an earnings call with analysts, Stephenson also pointed to bright spots and growth areas. He said AT&T is investing significantly in its fiber network and 5G, the next-generation wireless network that will support its future video-streaming business. It's also on track to launch a new subscription video service in the fourth quarter to challenge Netflix.
AT&T is juggling several significant challenges. It's trying to stem traditional TV losses, compete with fast-growing streaming services, pay down a heavy debt load and transform itself into a "modern media company" -- all while trying to merge the legacy telecommunications and the TV channels and movie studio brands that were once Time Warner.
It acquired Time Warner in June in a deal valued at $108.7 billion, including debt. With the deal, AT&T became owner of valuable content and sports licensing rights of Turner channels, the Warner Bros. studio and HBO. The entertainment division is now called WarnerMedia.
The juggling act is proving difficult. AT&T has lost top talent, including Turner CEO John Martin, HBO chief executive Richard Plepler and Turner President David Levy. AT&T hired Bob Greenblatt, the former NBC Entertainment leader, to oversee WarnerMedia and help launch the forthcoming subscription video-on-demand service.
AT&T is focused on paying off its debt from the Time Warner acquisition. It's on track to pay off about 75 percent of the $40 billion of debt by the end of the year, Chief Financial Officer John Stephens said.
The company recently sold Hulu its stake in the streaming-service company for $1.4 billion. It also sold office space in the Hudson Yards development in New York City to Related Companies for about $2.2 billion. WarnerMedia recently moved into a new office in the development.
AT&T said those moves helped it reduce net debt by $2.3 billion during the quarter, to $169 billion.
As the nation's largest cable and satellite TV provider, AT&T also is trying to steady the ship in its entertainment group. It has been losing hundreds of thousands of traditional TV customers quarter after quarter as people switch to streaming alternatives or other providers. In the first quarter, it lost 544,000 customers of DirecTV and U-Verse -- the sharpest decline in at least two years.
The company attributed the DirecTV declines to a price increase in January. It now has about 22.4 million traditional TV customers and 1.5 million subscribers to the live-streaming DirecTV Now.
AT&T also dropped the NFL Network and Red Zone from its U-Verse TV and DirecTV Now packages. As tensions flare with the National Football League, which is also interested in offering streaming rights, DirecTV's lucrative Sunday Ticket deal could be in jeopardy.
AT&T expects to see a bump in second-quarter subscriptions to the $15-per-month HBO Now service with the return of the popular Game of Thrones to the premium channel. But the series has only four episodes remaining.
AT&T's entertainment business faces new competition from T-Mobile and Disney. Disney is launching its streaming service Disney+ in mid-November for $7 per month. T-Mobile launched a cable TV service, TVision Home, this month as a rival to DirecTV.
AT&T's first-quarter profit of $4.1 billion, or 56 cents per share, was down 13 percent from last year, when it reported a profit of $4.7 billion, or 75 cents per share.
The Time Warner acquisition boosted quarterly revenue to $44.8 billion versus $38 billion a year ago, but the top line missed analysts' estimates.
AT&T's wireless business fared slightly better. It added 80,000 regular monthly phone subscribers, the first gain for a first quarter in five years. But wireless customers continue to hang on to their phones longer than ever, as only 3.5 percent upgraded, the lowest replacement rate ever. Verizon hit a similar low last quarter.
The slump at DirecTV Now is another sign that the holy grail of cheap, a la carte television remains as elusive as ever, and that the promise of cord-cutting has yet to materialize for consumers.
"Those expectations from day one were set wrong," said Dan Rayburn, an independent streaming media analyst.
Information for this article was contributed by Melissa Repko of The Dallas Morning News and by Brian Fung of The Washington Post.
Business on 04/25/2019