Here's Why AT&T Is Wrong About 'Low-Quality' DIRECTV NOW Subscribers

AT&T recently made some comments which did not seem to go down to well with video consumers.

The comments, by AT&T’s CEO & President, Randall Stephenson were part of a wider conversation addressing the changes that have recently been made to DIRECTV NOW.

These changes have come at a time when DIRECTV NOW has seen a subscriber exodus resulting in almost 20-percent of its user base leaving in the last six months.

As part of the comments, Stephenson argued this exodus was somehow part of the bigger plan as the company was undertaking a “customer cleanup” and suggested the majority of the customers were of a low-quality.

What Stephenson specifically said was those customers are “low-ARPU” customers and those that remained after the apparent cleanup would mainly be “high-quality customers.” Therefore, reading between the lines, AT&T does not place a high quality value on those low-ARPU customers.

But here’s why AT&T is wrong and how customers are customers regardless of how much revenue one might generate.

Micro vs macro revenue

A recent report looked to provide some context on the state of video streaming services, including data on the main live TV services.

That data highlighted how DIRECTV NOW has (or had) 1.5 million subscribers, and the average DIRECTV NOW user spend per month was $52.50 ($630 per year). All of which was said to result in an estimated annual subscription revenue for DIRECTV NOW of $945 million.

The same report did the same calculations for Sling TV and found Sling TV has 2.4 million subscribers with an estimated annual subscription revenue of $871 million.

At the superficial level, it would seem that DIRECTV NOW is doing better than Sling TV considering it is generating more subscription revenue and from far fewer subscribers. Presumably, this is exactly what Stephenson and AT&T are arguing with their preference for high-quality subscribers.

However, that would be ignoring the full context of the market. For example, the same data highlights the average Sling TV user monthly spend is $30 ($360 per year). This is almost half the average spend of a DIRECTV NOW user and certainly a per-user spend that AT&T would consider to be low.

After all, even though AT&T did greatly discount DIRECTV NOW in the early days, even at the lowest discounted price ($35 per month) it was still higher than the listed average user spend for Sling TV as of today.

If AT&T considers its discounted customers to be lacking in revenue quality, then it surely must consider Sling TV’s average user revenue to be equally lacking.

That all said, Sling TV’s overall subscription revenue was only $70 million short of DIRECTV NOW, based on this latest data, and this is precisely the result of Sling TV’s far superior user base.

With 2.4 million subscribers compared to DIRECTV NOW's 1.5 million, Sling TV is able to generate a similar level of overall subscription revenue while managing to maintain the lowest consumer price point of the main live TV streaming services.

Arguably, maintaining that lower price point also acts as an incentive for all the consumers who have yet to choose a subscription service. In addition, it is also likely to be a motivating factor that keeps people tied to Sling TV. This is likely why although Sling TV has seen minimal subscriber growth in the last six months, it hasn't seen any subscriber losses either.

Yes, Sling TV can probably be considered a lesser product due to the channel lineup on offer, and therefore may have the ability to charge less, but things are not that simple.

AT&T has the stock, but too greedy

When AT&T announced changes to its DIRECTV NOW plans it not only increased the price it charges each user, but it also decreased the number of channels on offer.

What AT&T actually did was remove many of the channels it has to pay for and instead opted to bulk out its service with channels it owns. AT&T was so cutthroat in this process that it effectively wiped Viacom from its DIRECTV NOW books. A move which also did not go down well with users and in the end DIRECTV NOW agreed a new deal to keep Viacom channels on DIRECTV NOW. Albeit, only about 50-percent compared to before.

In principle, AT&T now charges consumers more, even though its outgoings per-user have decreased since the introduction of the new plans.

Technically, this means AT&T is in a better position to offer its channel lineup at a more competitive price. At least, a better position than many of the other services who not only are still paying for the channels DIRECTV NOW has dropped, but also paying AT&T for any AT&T-owned channels/content they offer their subscribers.

Which brings us to the real reason AT&T has done everything it has in the past few months. The reality is AT&T does not have an issue with low-ARPU customers, it has a debt issue thanks to its acquisition of Time Warner and DIRECTV NOW, among other things.

These purchases are designed to massively transform the company into a media giant, but that's the long-term plan. In the meantime, these purchases have placed a large financial burden on AT&T and one the company is keen to reduce as quickly as it can.

By actions taken recently, this would also seem to be by any means possible. Therefore, AT&T’s goal now is to simply generate as much ARPU as possible to keep all those involved in the wider AT&T dealings happy.

Again, AT&T does not have a problem with low-APRU consumers, it just has no desire to placate them any longer. Those consumers offer little cash value and so AT&T simply doesn’t care about them - that's a big mistake.

Sling TV is proving you can generate revenue without focusing in on each individual user in this way. Yes, a user might generate little revenue, but many users generate many little revenues which add up to a much larger revenue. In Sling TV's case, almost as much revenue as AT&T is generating by focusing on higher spend users. This is in spite of Sling TV not having the content arsenal AT&T does.

If the data from the recent report is taken as accurate, then another interesting caveat is that the average monthly user spend on DIRECTV NOW is only $2.50 more than the price of its entry-level plan. This is a calculation of the average cost of different plans offered by the same service. In Sling TV's case, its average monthly user spend came in at $30. That's $5 more than the price of its entry level plan. This could be interpreted as DIRECTV NOW's plans being higher enough that consumers tend to stick to the lower-priced plan. The same interpretation would suggest Sling TV's plans are priced so low consumers become more willing to pay more.

What’s more. It is not just Sling TV proving its better go for a wide pool of subscribers and not just the ones who spend the most.

Where DIRECTV NOW loses, Hulu wins

Hulu and its “with Live TV” arm was shown to be the best at this game with its estimated annual subscription revenue listed as just under $1.1 billion.

Hulu has achieved this in spite of being a newer arrival compared to Sling TV and DIRECTV NOW, and with an average monthly user spend of $44.99. That's not only cheaper than DIRECTV NOW's most basic plan, but Hulu's option also includes a $5.99 subscription to Hulu's standard on-demand subscription service. Effectively, the live TV portion of the subscription comes in at $39 per month.

Hulu has been able to do this as the $5.99 subscription is an ad-supported plan which means it get to serve more ads to more users than it would if it didn't bundle the two plans together. AT&T could also do this but it is so fixated on generating per-user revenue that it would rather charge users for different subscriptions (DIRECTV NOW, Watch TV and the upcoming WarnerMedia service) in the hope it can make money off those users twice - subscription and eyes on ads.

The problem with this approach is already evident by the number of consumers who are leaving DIRECTV NOW as this results in less eyes on ads overall. This is in addition to what is likely to be a low number of users who subscribe to both WatchTV and DIRECTV NOW.

And yes, while Hulu is now at the two million subscriber marker and as a result it now has half a million more subscribers than DIRECTV NOW to play with, this wasn’t always the case. AT&T and DIRECTV NOW was the one closing in on two million subscribers before it started its “customer cleanup.”

Arguably, those low-quality or low-ARPU customers that AT&T seems happy to lose have made their way straight to Hulu, and if that is the case, then it is those same low-quality subscribers that are now helping Hulu rise ever closer to the top of the live TV streaming ranks.

That's in terms of the number of subscribers, as it already sits at the top for revenue - the very thing AT&T is looking to generate by cleaning up its customer base.

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About the Author
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John Anon

Editor-in-Chief
John has been writing about and reviewing tech products since 2014 after making the transition from writing about and reviewing airlines. With a background in Psychology, John has a particular interest in the science and future of the industry. Besides adopting the Managing Editor role at AH John also covers much of the news surrounding audio and visual tech, including cord-cutting, the state of Pay-TV, and Android TV. Contact him at [email protected]