AT&T reaffirms confidence in entertainment group
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Joseph O'Halloran
| 01 March 2019

It may have just stopped reeling from the blow of a horrible fourth quarter in its video business but buoyed by the quashing of the final appeal against its purchase of Time Warner, AT&T has laid out the steps it says will lead to recovery.

Speaking at a Morgan Stanley Conference, AT&T chief financial officer John Stephens said the company was confident in its ability to stabilise EBITDA in its Entertainment Group in 2019 after its dreadful quarter in which its Skinny TV operator DIRECTV Now saw 267,000 subscribers walk away, contributing to a loss of 658,000 video subscribers, including DirecTV satellite and U-verse. This represented the largest subscriber loss for AT&T in three years. The DirecTV streaming service had approximately 1.6 million subscribers at the end of 2018, down from 1.86 million at the end of Q3.

Stephens said that AT&T expects a significant improvement in the year-over-year EBITDA growth rate in the first quarter of 2019 even as linear subscriber losses are expected to continue their fourth-quarter 2018 trend.

As part of the steps that he says the company has to take, and to achieve its 2019 guidance, Stephens reiterated AT&T’s strategic priorities for the year, including leading in network through its fibre, 5G and FirstNet investments; growing wireless service revenues; stabilising entertainment group EBITDA; delivering merger synergies, growing WarnerMedia revenues and beta launching a WarnerMedia subscription video-on-demand service in the fourth quarter.

Stephens said that the company expects Entertainment Group EBITDA ro reflect improving video ARPU as previous two-year price locks continue to expire. The company also expects that typical annual price increases and growth in advertising revenues will help offset content cost increases. AT&T will also continue to focus on profitability for DIRECTV Now with focused promotions.

WarnerMedia was accretive to revenues, adjusted EPS and free cash flow in the second half of 2018. Stephens noted that the company continues to expect merger-related synergies of about $700 million, on a run-rate basis, by year-end 2019. AT&T plans a beta launch of its subscription video-on-demand service in late 2019 with three tiers of service to meet customers’ needs. The SVOD service is designed to complement WarnerMedia’s existing business; benefit current distributors; expand audiences and increase engagement; and provide data and analytics to inform new products and better monetise content.

Stephens said that AT&T is confident its existing affiliate and licensing relationships will continue to be important and that it will give traditional distributors the ability to package the new service with other offers.