Despite adding 312,000 DirecTV Now subscribers in the first quarter of 2018, AT&T on Wednesday still reported disappointing financial results for its entertainment group.
AT&T OTT TV offering now has 1.46 million subscribers. The additions help offset the loss of 188,000 DirecTV satellite customers in Q1, with DirecTV’s customer base now shrinking 3.5 percent year over year. Even though AT&T reported 125,000 net video additions—including the addition of 1,000 U-Verse customers — the shift to lower priced offerings was reflected in revenue declines for AT&T’s video business.
Revenue for AT&T’s video entertainment segment was $8.5 billion, down 6.2 percent when adjusted for an accounting change.
“AT&T doesn’t make any money on these [DirecTV Now] subscribers, and, with a promotion of a free 4K Apple TV in order to get them, the rapid addition of subscribers is a pyrrhic victory,” MoffettNathanson analysts wrote in a research note.
Overall, the company reported $38 billion in consolidated revenues, down 3.4 percent year over year, falling short of Wall Street expectations of $39.3 billion. AT&T this quarter adopted a new accounting standard on revenue recognition that relates to fees from the Universal Service Fund. The change reduced both revenues and expenses by about $900 million. Under the old rules consolidated revenues would have been $38.9 billion, or down 1.1 percent.
Broadband fared slightly better than video in Q1, as AT&T added 154,000 IP subscribers for the quarter, offsetting the loss of 72,000 DSL customers. Discounting, however, impacted ARPU, which fell 7.1 percent year over year. Broadband revenues were down 3.2 percent to $1.9 billion.
AT&T’s fiber network now passes more than 8 million customer locations and the company expects that to expand to about 10 million by the end of 2018.
Together, the AT&T’s Entertainment Group recorded revenue of $11.58 billion, down what MoffettNathanson analysts called “a stomach-churning” 6.6 percent, or by an even steeper 8.3 percent under the new accounting method.
“All of AT&T’s consolidated growth metrics are negative, and they are trending lower rather than higher,” the note continued. “As has been the case since before AT&T acquired DirecTV, AT&T remains a company that is struggling to find a path to growth.”
Despite the revenue declines, CEO Randall Stephenson in a statement focused on subscriber additions.
“We’re off to a good start in 2018, both in growing our customer base and in building the world’s premier gigabit network,” Stephenson said in a statement. “Our investment in customer growth and our integrated service offerings helped drive solid first-quarter subscriber gains across our wireless, video and broadband businesses.”
AT&T and Time Warner are currently battling the Department of Justice in an antitrust trial, which has reached its sixth week, against the two company’s proposed $85 billion deal. The DOJ has argued the combined company would hurt competition and raise costs for consumers.
Closing arguments are scheduled for April 30. On AT&T’s Wednesday earnings call AT&T CFO John Stephens said, “Based on the court’s determination, we stand ready to close.”
During Stephenson’s trial testimony last week, he revealed that the telco plans to debut AT&T Watch in the coming weeks, a sports-free live streaming TV service that is free to wireless subscribers and costs $15 per month for other customers.
Stephens reiterated on the earnings call that a next-generation DirecTV Now platform will be launched this year, featuring cloud-based DVR and a third video stream.
