AT&T is moving further away from the low-cost virtual MVPD (“skinny bundle”) model it helped pioneer with DirecTV Now back when it launched in 2016. Per multiple reports on Friday, AT&T will increase the monthly price of its “Plus” tier by $15 (to $65 per month) and its “Max” tier by $10 (to $80 per month) in November.
This past summer AT&T rebranded DirecTV Now as AT&T TV Now. DirecTV Now had already imposed a $10 per month price hike back in March and consolidated DirecTV Now’s original 3 tiers into the 2 current tiers and included HBO with both of them. If you were to back out the $15 per month that a standalone HBO Now subscription would cost, then the “Plus” and “Max” tiers would be $50 per month and $70 per month, respectively.
Those rates are essentially in line for comparable vMVPD services like YouTube TV ($50 per month), Hulu with Live TV ($45 per month), fuboTV ($55 per month) or PlayStation Vue ($55 per month for Core tier). All of these services include the major broadcast TV networks and a lot of other overlapping content. Other features vary between the services, such as YouTube TV’s unlimited DVR, and Hulu’s SVOD library.
The earlier price increase, coupled with a dramatic slowdown in discount promotions and rising competition had already driven down DirecTV Now subscribers by 168K subscribers in Q2 ’19. That brought DirecTV Now’s total losses for the prior 4 quarters to 469K subscribers.
There’s no doubt the new moves will cause more subscriber contraction, as AT&T moves steadily away from the low-cost virtual MVPD model that was its primary initial appeal. High programming costs always meant that turning a profit on vMVPD services was going to be challenging. At one time these seemed palatable as a way of bolstering wireless subscribers (I called it the “video as bait” strategy) and offsetting losses from AT&T’s traditional MVPDs U-verse and DirecTV.
But AT&T massive debt load, incurred from the Time Warner acquisition, has reduced the company’s flexibility to absorb short-term losses (not to mention an activist investor campaign against the company which could lead to the spin-off of DirecTV entirely). Two other new services, AT&T TV (the OTT-delivered DirecTV alternative) and HBO Max (the SVOD service launching next spring) will likely become the company’s core bundling methods for wireless.
DirecTV Now / AT&T TV Now had a quick 3 year evolution from golden child to unloved orphan. When AT&T reports its Q3 ’19 results next Monday, we’ll get another update on its falling trajectory.