AT&T Wants to Be Big in Entertainment. First, It Has a $49 Billion Problem to Fix. – By Drew FitzGerald Jan. 29, 2019 10:56 a.m. ET

A DirecTV technician removes a satellite TV dish at a building in Lynwood, Calif. PATRICK T. FALLON/BLOOMBERG NEWS

When AT&T Inc. T 0.10% took over DirecTV in 2015, a group of executives from the two companies gathered at Fleming’s steakhouse in El Segundo, Calif., to celebrate the deal. Toward the end of the dinner, DirecTV chief Mike White stood up, drew a lightsaber and handed it to an executive of AT&T, saying it might help in future negotiations with channel owners.

Today the telecom company, nicknamed the Death Star by detractors, isn’t scaring so many. Acquiring satellite-TV provider DirecTV, which cost $49 billion, was supposed to catalyze AT&T’s transformation into a media and entertainment giant. Instead, it has become one of the biggest casualties of the rise of Netflix Inc. and other streaming-video services.

DirecTV has lost 1.4 million satellite customers since its peak of 21 million-plus about two years ago. Analysts expect news of roughly 300,000 more defections when AT&T reports quarterly results on Wednesday. AT&T is bracing for cancellations this year that would cut into its 2019 operating profits by $1 billion.

The company has told investors it plans to make up for much of the money lost to defections by charging more to customers with discounts who stay. Meanwhile, some former call-center workers say AT&T has incentivized such employees to make it as difficult as possible for customers to cancel, a claim the company disputes.

AT&T is facing the perils of trying to move beyond its telecom roots into a media industry where the balance of power is dramatically shifting. DirecTV in the span of a few years has evolved from a springboard for its parent company’s show-business ambitions into a drag on its business and public image. The shift has weakened AT&T’s hold on once-reliable channel-surfers as it seeks to capitalize on an even bigger purchase of an entertainment heavyweight, its $81 billion acquisition of Time Warner Inc.

See Change

Skinny online channel bundles are growing, but traditional TV service is losing customers at a faster rate. Satellite services Dish and DirecTV have suffered most from the slump.

*As of 4Q 2018, includes estimates †Excludes Netflix, which added about 13 million subscribers

Source: UBS AG

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