The steep losses highlight the obstacles facing AT&T as it seeks to build a viable successor to its legacy TV products, DirectTV and U-verse, which also have continued to suffer as Americans cancel traditional cable subscriptions. But, some analysts say, 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.
AT&T blamed the DirecTV Now losses on the end of promotions that had encouraged many consumers to sign up for the app in the first place. Also last month, DirecTV Now announced that existing customers would pay $10 more per month, the second time in nine months that prices had risen.
On AT&T’s earnings call, chief executive Randall Stephenson told investors that DirecTV Now might continue shedding customers over the next several months but that he expects conditions to stabilize in the second half of the year.
In a statement, AT&T said DirecTV Now’s price changes meant the company was, on average, making more money from each subscriber.
“Video volumes — both traditional and DIRECTV NOW — were affected by our focus on long-term profitability,” the company said. “Our goal is to drive strong lifetime values across multiple products, so we’re increasing our focus on higher-quality customers.”
Analysts say AT&T’s focus on profits at the expense of subscriber growth — and customers’ wallets — underscores the pressure from investors to pay down company debt more quickly. The company owed as much as $180 billion after acquiring Time Warner last year; by the end of this year, AT&T aims to reduce its debt to $150 billion.
But the “aggressive” price hikes mean customers are headed for the exits, said Craig Moffett, an industry analyst at research firm MoffettNathanson.
“They are suffering horrific losses at DirecTV — and as bad as those already were … what they’ve delivered is even worse, and that’s why the stock is reacting,” said Moffett.
Shares of AT&T closed Wednesday at $30.82, down about 4 percent.