Virtual pay-TV operator DirecTV Now lost 267K subscribers in Q4, ’18, per its parent AT&T’s earnings report this morning. DTV Now’s loss contributed to an overall loss of 658K video subscribers (including DirecTV satellite and U-verse) that AT&T sustained in Q4, the biggest in at least 3 years. DTV Now had approximately 1.6 million subscribers at the end of 2018, down from 1.86 million at the end of Q3 '18.
More noteworthy than the overall AT&T video loss is DTV Now’s strikingly quick reversal of fortune. Just one year ago, in Q4’ 17, DTV Now gained 368K subscribers, meaning its Q4 swing was a whopping 635K. Two years ago, in Q4 ’16, DTV Now gained 267K subscribers. For all of 2018 DTV Now gained just 436K subscribers, compared to the 888K subscribers it added in all of 2017. And to put the 2018 additions in perspective, they were mostly all front-loaded, with DTV Now gaining 654K subscribers combined in Q1 and Q2, then dropping to 49K in Q3 and then the loss of 267K in Q4.
DTV Now’s sagging performance reflects at least 4 trends: its reduced emphasis on discounted promotions to lure new subscribers plus higher base rates, churn among existing subscribers as initial discount periods expire, intensifying competition from other virtual pay-TV operators (most notably YouTube TV) and overall cord-cutting and cord-nevering (people simply opting out of having any type of pay-TV subscription).
This quadruple whammy has been crystalizing over the past several quarters for DTV Now with AT&T management previously saying it was scaling back on promotions and special offers and focusing on improving profitability. Other virtual pay-TV operators like Sling TV, YouTube TV and Hulu with Live TV have all raised their prices as well, as the industry seeks to stem mounting losses.
In Q3 ’18, a slowdown in subscriber additions among virtual pay-TV operators caused pay-TV operators as a whole to lose nearly a million subscribers, a new record. But with DTV Now’s Q4 loss (and quite possibly a subscriber loss coming in Q4 from Sling TV when it reports), the negative impact of virtual operators on the overall industry will be more pronounced in Q4 than ever.
What a difference a year makes. While virtual pay-TV operators have been positioned as a way for people to “cord-shift” from pay-TV’s expensive multichannel bundles to less costly skinnier bundles, we’re now starting to see what true equilibrium looks like as aggressive price promotions end and churn heats up. SVOD services are already a huge aggravating factor in pulling audiences away from pay-TV (and driving up cord-cutting). On top of SVOD, free, ad-supported alternatives like The Roku Channel, IMDb’s Freedive, YouTube’s licensed content and others are emerging. Later this year and into next year will bring the launch of Apple’s original TV shows and streaming services from Disney, WarnerMedia and NBCUniversal to name a few.
In short, the video landscape is already super-competitive and it is going to become even more so. All of this will make it even tougher for virtual pay-TV operators to keep up their subscriber counts, in turn pressuring the larger pay-TV industry numbers. How all of this ultimately shakes out is anyone’s best guess, but DTV Now’s Q4 loss is certainly a harbinger of the challenges ahead.