Investor Lawsuit Accuses AT&T Of Downplaying Streaming Video Losses
from the nothing-to-see-here dept
So we’ve noted how AT&T’s latest round of merger mania isn’t providing quite the returns the company expected. After spending $67 billion to buy DirecTV and another $86 billion to acquire Time Warner, AT&T had hoped to become a juggernaut in the internet video and online advertising space. But those efforts haven’t gone quite according to plan. The company has been losing both traditional TV (DirecTV, IPTV) and streaming video (DirecTV Now) customers at an alarming rate, thanks largely due to AT&T price hikes imposed to try and recoup the massive debt load AT&T acquired during its fit of merger mania.
A new lawsuit (pdf) is now complicating AT&T’s ambitions further. The lawsuit, filed last week in US District Court for the Southern District of New York, accuses AT&T executives like CEO Randall Stephenson of violating the US Securities Act by “knowingly or recklessly” making false statements to investors by failing to disclose that the company’s DirecTV Now streaming platform wasn’t doing all that well.
More specifically, the lawsuit accuses AT&T of issuing press releases, filings, and other public statements that actively downplayed or omitted the fact that the company’s streaming customers were headed for the exits (267,000 in Q4 alone), in large part thanks to several rounds of rate hikes on the company’s DirecTV Now streaming platform.
The firm backing the lawsuit focuses specifically on the June 2018 registration statement issued in connection with the stock issuance during the Time Warner Merger, which proclaimed that the losses AT&T was seeing on the traditional TV front (DirecTV) weren’t that big of a deal because they’d be offset by growth at the company’s new streaming service. Omitted was the fact that price hikes were actually driving subscribers away, resulting in the company’s stock taking a notable dive when the collective video losses were formally announced in October of 2018:
“AT&T’s registration statement touted yearly and quarterly growth trends… including quarterly subscriber gains in its DirecTV Now service sufficient to offset any decrease in traditional satellite DirecTV subscribers, such that AT&T was experiencing an ongoing trend of total video subscriber ‘net additions,'” the complaint said.
But in reality, “DirecTV Now subscribers were leaving (i.e., not renewing) as soon as their promotional discount periods expired, while at the same time new potential DirecTV Now customers were unwilling to pay the higher prices and therefore not subscribing at all,” the complaint said. By the time AT&T bought Time Warner, “AT&T’s reported ‘net additions’ growth trend was already reversing into a severe ‘net loss.'”
Like Verizon, AT&T had hoped to pivot from stodgy old telco to sexy new online Millennial advertising juggernaut. But also like Verizon, AT&T executives tend to have a worldview crafted by decades as a government-pampered monopoly, resulting in market behaviors that don’t always make sense in context. Like hiking prices on your new streaming service in the wake of soaring video competition (despite having just received a $20 billion tax cut), for example. Or buying a satellite TV provider on the eve of the cord cutting revolution, as another example.
All told, consumers are pissed at AT&T because of rate hikes and the company’s frontal assault on net neutrality. Competitors are pissed at AT&T because it immediately began using its Time Warner acquisition as a weapon to drive up the cost of “must have” channels like HBO. And investors are pissed because these deals were supposed to revolutionize AT&T’s business, not result in soaring debt and subscriber declines. All in all, not quite the televised revolution AT&T had promised anybody in the chain.