DirecTV said it has restored service on all of its channels after a satellite issue caused a nationwide pay TV outage on Tuesday.

“Following a space event, our team of engineers and rocket scientists repositioned the satellite and have successfully restored all channels,” DirecTV told NextTV in an emailed statement Wednesday.

Thousands of DirecTV satellite TV users began reporting service disruptions Tuesday morning, according to DownDetector.com. Some affected subscribers described seeing a “771” error code, which indicates the receiver is having trouble communicating with their satellite dish.

Troubled peaked Tuesday afternoon, with 1,378 reports, but complaints continued to trickle in early Wednesday morning.

According to DownDetector.com, locations of concentration included New York City, Los Angeles, Chicago, Indianapolis, Cincinnati, Las Vegas and Miami.

The outage came less than a week after tens of thousands of AT&T customers lost phone service due to a nearly 12-hour network blackout.

AT&T is offering $5 per account for customers who may have been affected by the telecom’s Feb. 22 outage, which CEO John Stankey said is “essentially a full day of service.”

DirecTV is getting ready for the football season and the TV season with a commercial that mashes up the NFL and reality TV.

The spot features Dak Prescott, the quarterback of the Dallas Cowboys and Teresa Guidice, a leader of the Real Housewives team, which wreaks havoc on the gridiron. 

Earlier DirecTV spots featured tennis superstar Serena Williams and baseball all stars Alex Rodrigues, David Ortiz, Randy Johnson and Ken Griffey Jr. 

Also: DirecTV Loses an Estimated 400,000 Subscribers in Q2 as Base Dips Below 14 Million

Also featured in the new Wives House spot, which continues DirecTV’s pitch that it offers both the best of live sport and entertainment together, are housewives Kyle Richards and Kenya Moore, and Prescott’s teammate CeeDee Lamb.

“Our entertaining commercials throughout the years have always been a great way to help  consumers understand what DirecTV does – delivering the best content in one place for  maximum enjoyment,” said Vince Torres, chief marketing officer, DirecTV. 

“Shooting the DirecTV commercial was a great experience,” said Prescott. “I hope that  both football fans and reality show buffs will have as much fun watching it as we all did making  it.”  

The campaign was created by ad agency TWBA/Chiat/Day.  ■

AT&T’s decision to sell a minority interest in DirecTV to TPG Capital didn’t come as a surprise, it had been expected for months as the phone company let small details around the deal trickle out beginning last year. But the deal, where TPG Capital will get a 30% interest in DirecTV, virtual MVPD AT&T TV Now and IPTV service U-verse for $7.8 billion, had analysts searching for meaning behind selling what was once the premier pay TV asset for about a quarter of what it paid for it seven years ago. 

The TPG deal values DirecTV, once the scourge of every cable operator and the largest multichannel video programming distributor in the country, at $16.25 billion (after it paid, including assumed debt, $66 billion for the asset in 2015). Enough has been said about how since AT&T bought DirecTV, it has nearly sucked the life out of the satellite giant, how it has lost nearly 10 million customers, its relevance as a brand and its heart as the gold standard for customer service and quality. Put those thoughts on the shelf for a minute. What the deal shows, according to some analysts, is that AT&T, seeking a way, any way, to pay down the debt it has accumulated over the past six years through the DirecTV buy and its $100-plus billion purchase of Time Warner Inc. -- has again been taken advantage of in the TV space.

Granted, DirecTV is a declining asset -- it has lost bucketsful of subscribers over the years and in the broadband era, its product can’t really compete with cable operators with two revenue streams and  the streaming services that appear to have taken over the TV business. But, c’mon, did it really have to end like this?

In an email to clients, MoffettNathanson principal and senior analyst Craig Moffett, long a critic of AT&T’s purchase of DirecTV in the first place, wrote that the TPG deal serves the purpose of removing the satellite company’s dismal financials from the phone company’s books. But that’s essentially where the benefit ends. 

“In short, what they’ve really done is buy the right to lock DirecTV in the basement in the hope that no one remembers it’s down there,” Moffett wrote.  “It will surely no longer be mentioned when AT&T reports earnings.”

The “bewilderingly complex transaction,” according to Moffett, will basically give AT&T some extra cash ($1.8 billion from TPG), a vehicle in the spun-off entity to raise debt ($5.8 billion) and control of an asset it doesn’t care for. 

And the ultimate irony is that the deal doesn’t actually reduce AT&T’s leverage, it increases it. According to Moffett, the $7.8 billion used to pay down debt is offset by the loss of $3 billion in cash flow from DirecTV. So in real numbers, AT&T leverage ratio climbs from 4.1 times cash flow to 4.2 times when the deal closes in the second half of this year.  

The deal may be complicated, but Moffett said one thing is glaringly obvious.

“This much is clear,” he wrote. “ AT&T’s DirecTV is inarguably one of the worst acquisitions of all time.”   

Also Read: AT&T and DirecTV: Divorce Won’t Be Easy

In a research note, Barclays Group media analyst Kannan Venkateshwar noted that AT&T has said that it expects about $1 billion in annual free cash flow starting next year from the spin-off. While the structure is complicated -- he added that it isn’t clear how AT&T will split the $4 billion in DirecTV free cash flow (70/30 or 50/50) -- if TPG gets in the neighborhood of the $1 billion AT&T expects, the returns on its $1.8 billion cash investment will be rather large in a very short period of time. Remember, that according to the deal terms, TPG is contributing $1.8 billion in cash and assuming about $6 billion in debt as part of the deal. Curiously, that amount is pretty close to the $8.1 billion TPG received in its sale of Astound Broadband, the 1-million subscriber cable operator (RCN, Grade Communications, Wave Broadband and enTouch) it sold to Stonepeak Infrastructure Partners last year. 

Venkateshwar was one of many analysts who pointed out that the deal appears to favor TPG more -- in another research note, Evercore ISI Group analyst Vijay Jayant wrote that determining whether the sale was good for AT&T is “Complicated”. But the Barclays analyst deal hinted that the TPG deal is so bad for AT&T that it just has to have an angle that maybe others are missing. 

Also Read: AT&T: Taking a Mulligan on Media 

In his note, Venkateshwar said that the deal is interesting because it hits almost none of the metrics usually associated with such deals -- it’s free cash flow dilutive, it doesn’t really reduce AT&T’s debt that much (about $200 million) and allows AT&T to “lose strategic control” over one of its biggest cash cows. To make matters worse, he wrote that the leverage on the new company is a lot lower than what investors would normally expect from a private equity deal.  

“A skeptical read could be that the decision to sell despite the low valuation, the inability to hit financial deal objectives, and the unusually low leverage are all likely due to more structural risk than investors may have anticipated in AT&T,” Venkateshwar wrote. “However, in our opinion, the unusual structure could imply that the transaction is potentially just the first phase of a more comprehensive transaction. It is also possible that it is a combination of both.”

Venkateshwar suggested that TPG might be able to work better behind the scenes toward a Dish merger, adding that the synergies of such a deal could boost AT&T’s economics at some point in the future. 

“This would also explain the decision to put a low leverage on the asset as the combined company could have significant synergies which can then be levered up more efficiently to drive much higher returns for all counterparties,”  Venkateshwar wrote. “Therefore, while the initial read for AT&T from the announcement seems to be negative, we think there could be more to the deal than meets the eye.”

On a conference call with analysts to discuss the deal on Feb. 25, AT&T CEO John Stankey didn’t want to comment on the merger potential of the deal. 

“There are a lot of different terms and conditions in it  [the TPG deal] and a lot of different scenarios that might be out there that I’m not going to talk about or fill in the public on,” Stankey said on the call. “Generally speaking, we remain a participant in any future value that gets created as a 70% owner of this entity. If something else occurs, we get 70% of the value and our partner gets 30% of the value as a general rule. Both parties are incented to try to create more value because it’s good for our investment and our structure moving forward. That’s the simplest way to think about it. ” 

The concept of the combination of DirecTV and Dish is nothing new. But even though the climate has changed, and the fact that the only two satellite TV companies in existence are both struggling, regulators are apparently no more open to a combination now than before. As recently as October, under a Republican administration mind you, the Dept. of Justice was reportedly sending messages that they would not allow a merger to take place. With a current Democratic administration not necessarily keen on making even struggling rich guys richer, chances of a deal happening can’t be much better. 

Dish chairman Charlie Ergen has said the merger of Dish and DirecTV is “inevitable,”  adding that the satellite business is a declining asset and that putting the two together would ensure their health. 

“Make no mistake, whether it’s a year from now or 10 years from now, I believe it’s inevitable those companies go together,” Ergen said during Dish’s Q3 conference call in November. 

To me, putting together two companies in an industry that has passed them by isn’t a solution, it’s procrastination. Together the two may have some cost synergies and additional scale, but the satellite TV business is still going to die. A Dish/DirecTV merger would only prolong the inevitable demise of both companies. 

In an August research report, Moffett estimated that merging with Dish would only improve the combined company’s subscriber erosion to 15% per year. And Moffett added that with Charter and others planning to increase rural broadband buildouts, the picture is even gloomier.

“If we see a huge post-COVID stimulus/infrastructure bill next year targeting broadband expansion, as seems likely, then the defensible rural segment will all but disappear,” Moffett wrote in the August note.

So, perhaps the reasoning behind the deal is really as simple as a company that realized it got into a bad business at an even worse time and just wanted out. In opening up the conference call on the deal Feb. 25, Stankey said " We didn't expect this outcome when we closed the DirecTV transaction in 2015, but it’s the right thing to do."

Or maybe, as a slightly older, wiser sage once put it, there is no why.

Invoking the pandemic, a bipartisan Nebraska congressional delegation has called on AT&T and DirecTV to deliver local broadcast stations in North Platte and Scottsbluff, two markets where AT&T has chosen not to deliver those local stations.

That came in a letter to AT&T from Sens. Deb Fischer (R-Neb.) and Ben Sasse (R-Neb.) and Rep. Adrian Smith (R-Neb.)

“It is imperative that your subscribers located in rural markets, where there is an increased reliance on satellite services, can receive local news, weather reports, and emergency alerts,” the letter reads. “Given the ongoing COVID-19 national emergency, the availability of local broadcast programming is more important now than ever. All Nebraska residents, no matter their location, need to be able to stay informed on statewide and local efforts to combat the pandemic.”

Unlike cable operators, satellite operators have no must-carry requirement, though if they carry any local stations they must carry them all. AT&T has chosen not to deliver stations in a dozen of the smallest markets via DirecTV, instead importing distant network signals and offering an over-the-air option for local stations alongside its satellite service.

The issue is in the spotlight because the Satellite Television Community Protection and Promotion Act, which passed late last year, prevents AT&T from importing those distant signals--including to long-haul truckers and RVers--after May 31 unless it has struck individual deals for those distant signals. The bill ended the blanket carriage license for those signals unless AT&T delivers local signals in those dozen remaining markets, in which case the blanket distant-signal license is preserved.

“It is imperative that your subscribers located in rural markets, where there is an increased reliance on satellite services, can receive local news, weather reports, and emergency alerts,” the legislators said. “Given the ongoing COVID-19 national emergency, the availability of local broadcast programming is more important now than ever."

“We are currently in discussions with each of the major broadcast networks to obtain access to their national programming for many for these impacted customers," said AT&T. "Local stations have exclusive control over who can offer their content within their communities. Our goal is to continue providing network content to as many homes as possible and impacted customers are eligible for a credit.”

AT&T continues to fine-tune its video strategy as it seeks to transition the bulk of its pay TV subscriber base to its new internet-delivered premium service, AT&T TV.

AT&T TV and DirecTV subscribers will now have a year of free HBO service when they sign up. The will also receive three free months of Showtime, Starz, Epix and Cinemax.

The offers appear to be separate from AT&T’s #ConnectedTogether campaign, which is currently offering free premium channel content to DirecTV, U-Verse, AT&T TV and AT&T TV Now subscribers.

The telco is also looking to reposition its skinner virtual pay TV service, AT&T TV Now, lowering the price by $10 to $55 a month, but stripping it of its free HBO perk. (The premium channel is now available to new AT&T TV Now subscribers as a $10-a-month add-on.)

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

The moves come as the COVID-19 pandemic crisis dampens AT&T’s hopes for a turnaround in its pay TV business, which lost nearly 5 million users last year.

Last week, MoffettNathanson analyst Craig Moffett said that instead of an earlier projection, which called for AT&T’s pay TV base to shrink by 13.1% in 2020 to 16.9 million subscribers, he now believes it will now decline by 16.6% to 16.2 million customers.

Also read: AT&T, DirecTV Set to Be Hit Hard by COVID-19 Recession: Analyst

AT&T last week revealed that it’s no longer adding new customers to its legacy IPTV platform, U-verse. And it’s working to transition much of its DirecTV customer base to AT&T TV.

“That would have been a difficult transition under the best of circumstances. These aren’t the best of circumstances,” Moffett said. 

Regional sports network Altitude Sports and Entertainment went dark to Comcast and DirecTV customers Saturday, leaving customers in 10 states without programming as the National Hockey League season opener nears.

Altitude had warned that it would go dark to DirecTV and Comcast customers if a carriage deal was not reached by Aug. 31. The RSN already went dark to Dish Network customers on Aug. 29. 

Pricing and Altitude’s apparent demand for minimum carriage levels appear to be at the heart of the disagreement. According to sources close to the talks, the parties are “far apart” in the negotiations, but that could change as game-day nears for many of the teams carried by the network.

“Altitude unfortunately forced AT&T to remove its channel from our customers’ lineups,” DirecTV said in a statement. “AT&T made a fair offer to keep the channel available, but Altitude rejected it. Consumers have made clear they want more choice over the channels they pay to receive in their homes. Our goal is to offer Rapids, Nuggets and Avalanche games to anyone who wants them most at a value that makes sense to our customers overall. We will not agree to bad deals that do a disservice to our customers, even if it means no longer carrying certain content.”

According to an article in the Denver Post, Altitude is claiming DirecTV and Comcast have proposed rates that are a 50% cut to the RSN’s current deal. 

Altitude, owned by Kroenke Sports & Entertainment, is available in 10 states -- Colorado, Kansas, Nebraska, Idaho, Montana, Wyoming, Utah, Northern New Mexico, Northeast Nevada and Southwest South Dakota. The RSN carries games and programming from the NHL Colorado Avalanche, the NBA Denver Nuggets, Major League Soccer’s Colorado Rapids, the National Lacrosse League Colorado Mammoth and college sports from the University of Denver. The NHL preseason is scheduled to begin on Sept. 15, with the Avalanche’s first game slated for Sept. 17 against the Vegas Golden Knights. The Avalanche regular season begins Oct. 3 at home versus the Calgary Flames.

If the talks drag into October, customers in the area also run the risk of missing pre-season games for the NBA Nuggets, which begin on Oct. 8. The Nuggets’ regular season starts Oct. 23 against the Portland Trailblazers.

“We want to reach an agreement with Altitude, but it must be at a reasonable price for our customers,” Comcast said in a statement. “Altitude has demanded significant annual price increases for the same content for years, which has driven up costs for all of our customers in Colorado and Utah, even though most of them do not watch the channel. Over the past year, more than 95% of Altitude subscribers watched less than the equivalent of a game per week. The price increase Altitude is again demanding is unacceptable given the network’s low viewership. We have submitted a proposal to Altitude that we believe reflects the value of its programming and are hopeful Altitude will accept it so we can continue to carry the network for those customers who want to watch it.”

Denver area regional sports network Altitude TV is warning viewers that it may be dropped by Comcast, Dish Network and DirecTV if the channel can’t reach a favorable carriage renewal soon.

Altitude is owned by Kroenke Sports & Entertainment and airs games from the NHL Colorado Avalanche, the NBA Denver Nuggets, Major League Soccer's Colorado Rapids, the National Lacrosse League’s Colorado Mammoth and college sports from the University of Denver. On its website, the network warned that its deal with Dish Network expires at midnight Wednesday, while its agreements with DirecTV and Comcast end on Saturday.

Dish, the network said, has carried Altitude TV since its inception on Sept. 4, 2004. The other two distributors have carried the channel for 15 consecutive years, Altitude said.

[embed]https://twitter.com/AltitudeTV/status/1166770527249338369[/embed]

“These actions by Dish, Comcast and DirecTV are directly related to contract negotiations with Altitude, and while Altitude has always negotiated with them in good faith and continues to negotiate in good faith, these Big Three media conglomerates want to play by their own rules and are making unrealistic demands on Altitude,” the network said on its website. “Their actions will affect hundreds of thousands of regional sports fans and negatively impact hundreds of local businesses that continue to support their home teams.”

The blackout threat comes as Dish Network continues to be embroiled in a carriage spat with Sinclair Broadcast Group’s Fox RSNs, which went dark to its customers in July.

In a statement, Dish said it hoped it could reach an agreement.

“Dish’s goal is to keep Altitude Sports available to our customers at a reasonable cost,” the satellite TV service said in a statement. “We are unsure why Altitude has decided to involve customers in the contract negotiation process when there is still time for the two parties to reach a mutually beneficial deal.”

At Comcast, the cable operator focused on value.

“We want to reach an agreement with Altitude, but it must be at a reasonable price for our customers," Comcast said in a statement. "Altitude has demanded significant annual price increases for the same content for years, which has driven up costs for all of our customers in Colorado and Utah, even though most of them do not watch the channel. Over the past year, more than 95% of Altitude subscribers watched less than the equivalent of a game per week. The price increase Altitude is again demanding is unacceptable given the network’s low viewership. We have submitted a proposal to Altitude that we believe reflects the value of its programming and are hopeful Altitude will accept it so we can continue to carry the network for those customers who want to watch it.”

DirecTV is deep in retransmission consent disputes with two separate parties — Nexstar Media Group, and a group of 17 smaller stations. In a statement, the satellite TV provider confirmed that its deal with Altitude expires on Saturday, and hinted that if it can't reach a deal that makes sense for its customers, it may do without the network.  

"DirecTV has made a very fair offer to Altitude," DirecTV said in a statement. "We remain on the side of consumer choice and value, and our negotiations reflect that. Consumers have made clear they want more choice over the channels they pay to receive in their homes. Our goal is to offer Rapids, Nuggets and Avalanche games to anyone who wants them most at a value that makes sense to our customers overall. But we will not do bad deals on behalf of our customers, even if it means no longer carrying certain content."

Epix has launched on the AT&T TV Now streaming service nearly three months after the premium service launched on AT&T’s DirecTv’s satellite service.

AT&T TV Now, formerly DirecTV Now, will offer Epix for $6 per month.The launch follows Epix and AT&T’s recently announced carriage agreement and the network’s May 19 launch on the DirecTV satellite service. Subscribers of the streaming service will have access to Epix original programming, including Pennyworth and upcoming drama Godfather of Harlem.

RELATED: AT&T, Epix Reach Carriage Deal 

“We’re thrilled to be launching on the AT&T TV app, making our premium programming available to even more AT&T customers across the country,” said Michael Wright, Epix president in a statement.. “It’s an incredibly exciting moment for the network as we continue to expand our distribution footprint and bring our superior customer experience and quality programming to new audiences.”

Added Daniel York, Chief Content Officer for AT&T: “We’re pleased to expand the Epix offering to our AT&T TV Now subscribers, giving our customers even more choice in quality premium programming.”

Analysts who have been bracing for heavy subscriber losses at AT&T’s pay TV businesses in the fourth quarter were proven correct and then some after the telco released financial results Wednesday morning, with nearly 400,000 customers heading for the exits as promotional offers rolled off.

AT&T lost 391,000 pay TV customers in total in the period -- including 267,000 at its DirecTV Now streaming service. AT&T said it had expected the declines, as it moves to wean itself of price-conscious, low-engagement subscribers and focuses on customers that spend more time with the service and are more apt to interact with targeted advertising products from its Xandr unit.

The declines helped drive down AT&T shares on Wednesday. The stock was priced as low as $29.01 in early trading, down 5.5%, or $1.69 per share, and closed at $29.37 on Jan.30, down 4.3%, or $1.33 each. 

Driving the losses was AT&T’s decision to eliminate its $10 per month DirecTV Now promotion. The company says that today, there are virtually no customers remaining that are paying that promotional price.

Analysts have wondered when AT&T would pull the plug on the $10 promotion, which helped drive subscriber rolls to new heights -- AT&T had about 1.87 million DirecTV Now customers at the end of Q3 -- but resulted in heavy financial losses.

On a conference call with analysts to discuss quarterly results, AT&T chairman and CEO Randall Stephenson said the subscriber losses were expected.

Related: DirecTV Now Likely to Report Q4 Declines Wednesday

“It’s been a year, year-and-a-half of learning what the market demand was going to be and what the customer engagement with the product was going to be,” Stephenson said, adding that as the pay TV product has evolved, AT&T decided to pull the plug on the $10 promo, which mostly focused on low-end customers who did not engage with the service.

“Obviously that has a significant impact on dilution,” Stephenson added. “This is one of the main drivers of dilution. This is also one of the primary triggers as we move into 2019 to getting us to EBITDA stability. Now we have a customer base left on the streaming base that is growing and is highly engaged customer base. We like where we are in how we are positioning the streaming product.”

Overall, revenue at AT&T was up 15.2% to $48 billion in the quarter, driven mainly by gains in its wireless segment and the Time Warner Inc., acquisition last year. Overall, AT&T’s Entertainment Group revenue was down 3.3% to $12.2 billion from $12.6 billion in the prior year. WarnerMedia, which consists mainly of the assets purchased in the Time Warner deal, increased revenue by 5.9% to $9.2 billion and operating income by 30% to $2.6 billion from $2 billion in the prior year. 

AT&T told analysts late Tuesday just what is up its sleeve regarding its just-completed $108.7 billion Time Warner merger, and it’s fairly simple: grow revenue and the profits will follow.

The trick though, is how to go about doing that.

According to chairman and CEO Randall Stephenson, the path toward profits winds through the millions of customers, viewers and users of AT&T properties, ranging from DirecTV, DirecTV Now, wireless and broadband services, which he numbers at about 170 million relationships, and the literally hundreds of millions of unique viewers of its digital properties. On a conference call to discuss second quarter results, Stephenson noted that cnn.com alone has 200 million unique viewers per month. Tack on other similarly-viewed digital properties from Otter Media and Bleacher Report and the opportunities abound.

Related: AT&T Nearing Deal to Buy All of Otter Media: Report

On the call, Stephenson talked of the new advertising opportunities through the Turner and Time Warner relationship. He noted that when AT&T delivers ads on DirecTV, its yields improve three-to-five times.

“Turner has an ad inventory that's three times the size of our DirecTV inventory, and as we apply the same data to that inventory, we expect a significant lift,” Stephenson said. “You take these three elements -- premium content, 170 million direct-to-consumer relationships and great ad technology -- and then you combine those with our high-speed networks, and we think all of this is a game changer.”

On the content side, WarnerMedia CEO John Stankey said he isn’t concerned with scale and content, but he does want content that scales. I guess that means the goal is to get its shows in front of more people.

Stankey took some heat from a New York Times article earlier this month that cast a Town Hall meeting he had with Turner and HBO employees in a somewhat unfavorable light. Some of his comments – particularly those that likened the media business to childbirth and his assertion that while HBO makes money, it doesn’t make enough – turned out not to be as bad as originally thought (he was apparently laughing when he made the HBO profit comment). On the conference call, Stankey said the reports didn’t “effectively characterize what we are about.”

What WarnerMedia is about, he said, is driving engagement.

“We have a tremendous amount of great projects already in the funnel that as the HBO team and Richard [Plepler, HBO chairman] would describe it, they have not been in a position to say yes to because of constraints on certain resources,” Stankey said.

He added that the goal is to remove constraints from top-quality projects to balance out the schedule to drive engagement on HBO throughout the year.

“That will improve the fact that we can see, especially on the digital platforms, you have customers jumping in and out based on scheduling,” he said. “And if we can smooth that schedule, we can drive churn down or improve retention and power additional subscriber growth.”

Part of that includes ramping up HBO’s programming spend, currently at around $2 billion, or about one-fourth the $8 billion Netflix spends. Stankey wouldn’t be specific as to just how much HBO’s programming budget will rise, but said AT&T could reinvest some of the efficiencies it gets from the merger and by running the business differently.

Related: Netflix Investing 85% of New Spending on Originals 

Stankey said while HBO and Turner properties have created a number of initiatives that are good in their own right, they have relatively small audiences compared to a company the size of AT&T, which he said needs to generate tens of millions of viewers, not millions.

The way to do that, he added, is through togetherness.

Stankey said WarnerMedia’s brands are plenty strong on their own, but not as powerful as they could be if they banded together.

“You can assemble the genre of content and bring them together on one platform and one experience that aggregates and gets scale,” Stankey said, adding that over time the company will unify brands into a more consistent and more focused experience, which will in turn increase scale.

But some analysts see a real problem with the belief that you can ramp up spending, and drive engagement but still offer your product below cost.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that while it’s nice to say you want to drive engagement, offer content across platforms and create more stuff, it’s not so easy to do that when you’re losing money on the distribution platform.

AT&T’s DirecTV satellite service has been bleeding customers for months – it lost about 286,000 customers in Q2. While its OTT service DirecTV Now gained about 342,000 subscribers (it has a total of 1.8 million customers, compared to DirecTV’s 19 million), that service is priced substantially lower than what it charges for the satellite service. DirecTV Now has also been bundling HBO for free in some of its packages and it offers a free Apple TV device to new subscribers. Moffett called the DirecTV Now subscriber gains a “pyrrhic victory.”

Although Turner had a good Q2 – ad revenue rose 3% and total revenue increased 6.3% -- Moffett isn’t sure it will last long. There is a risk that Turner’s growth rate cold fall sharply in the next round of affiliate renewals --- it’s last deals were heavily front loaded because of sports. And while AT&T said it was encouraged by increased advertising opportunities, Moffett’s colleague Michael Nathanson has written that TV ads are shrinking for the first time in a non-recession.

And when it comes to togetherness, the analyst hopes that is not code for heavy discounting under the guise of bundling.

“With DirecTV, AT&T’s bundling strategy has amounted to little more than giving customers more for less,” Moffett wrote, adding that may have helped with churn in the wireless division, it decimated the satellite company’s profitability. Moffett estimated that DirecTV’s cash flow declined 16.8% in Q2.

“They started giving away HBO even before they owned it,” Moffett continued. “That inflated HBO’s growth rate when [Time Warner] was a standalone company, but it won’t help now that it’s inside AT&T.”  

Time Warner Cable has had a second olive branch slapped out of its hand in its ongoing efforts to get pay TV operators in the California market to carry regional sports network SportsNet LA, meaning baseball fans will likely miss opening day for the Los Angeles Dodgers on Monday. 

According to reports, Time Warner Cable offered AT&T (and its DirecTV satellite unit) a six-year deal to carry the RSN, the first year at a 30% discount and the next five at a rate equal to what TWC pays for AT&T’s Root Sports Northwest RSN (which carries Seattle Mariners baseball games). According to SNL Kagan, Root Sports Northwest charges $3.84 per subscriber monthly.

It was the second olive branch the cable operator offered to distributors in the market. Earlier in the month, TWC said it would reduce the price of the channel by 30% for one year, to allow Dodgers fans in the market to catch the final season of legendary broadcaster Vin Scully, who plans to retire after the 2016 season. Distributors rejected the offer wholeheartedly and criticized the company for using Scully, who has been the TV voice of the Dodgers for decades, as a bargaining chip in negotiations. 

The new rate would have reduced the cost of SportsNet LA, one of the priciest RSNs according to SNL Kagan at $4.90 per subscriber per month, to about $3.50 in the first year of the deal and $3.84 in the second year and beyond. 

Time Warner Cable spokesperson Maureen Huff confirmed in an e-mail message that a new offer is on the table, but was not optimistic that a deal will be reached in time for the first pitch of the 2016 season, slated for April 4.

“So far, AT&T/DIRECTV has rejected every compromise we've offered them and we’ve seen nothing to indicate that they’re truly interested in negotiating a deal,” Huff said in an e-mail message. Huff wouldn’t give details on the latest offer but confirmed that the latest offer was for a longer-term than the one-year proposal.

Time Warner Cable has struggled to find distributors willing to carry the RSN, which it launched in 2014 after agreeing to pay $8.5 billion for rights to Dodgers games. So far, only Time Warner Cable, Charter Communications (which is in the prices of buying TWC), Bright House Networks (in the process of being bought by Charter) have agreed to pay the estimated $4.90 per subscriber per month for the channel.  

Cox Communications, which has subscribers in San Diego, wouldn’t comment on specific offers but spokesman Todd Smith said in an e-mail that the company continues "to seek a flexible, long term carriage agreement that doesn't unnecessarily burden our entire customer base. We must consider the needs of baseball fans and non-sports enthusiasts alike.” 

More Distributor of the Year Stories:AT&T Scales to Top of MVPD Mountain | AT&T Gears Up for the Gigabit Era

Meet the new boss. Not quite the same as the old boss.

AT&T’s $48.5 billion merger with DirecTV took a yearlong backseat to more high-profile deals in the media space, but in the end, it was the deal that got done.

Practically sailing through the regulatory approval process — the merger closed on July 24, about 14 months after it was first announced in May — and with virtually none of the controversy surrounding the more high-profile (and eventually aborted) Comcast-Time Warner Cable union, it nevertheless created a new top dog among multichannel video programming distributors (MVPDs).

With 26.3 million video customers, AT&T now sits at the top of the heap, a spot formerly held by Comcast and its 22 million customers. It’s armed with the scale that its peers crave and are actively pursuing. And it did so without having to make onerous concessions.

While Comcast withdrew from its Time Warner Cable acquisition in April, after it became evident that the Federal Communications Commission wouldn’t approve the deal because of the sheer dominance the combined company would have over the broadband market, AT&T-DirecTV passed muster with only a few conditions. AT&T promised to expand its fiber network to an additional 12.5 million customer locations, pledged not to discriminate against online distribution services and agreed to maintain an internal compliance officer to make sure it is adhering to those conditions and offering broadband service to low-income consumers at discounted rates.

Out of the box, AT&T unleashed a torrent of discount offers aimed at pairing its newfound satellite video service with its wireless phone network, the second-largest in the U.S. It was the closest thing to the heretofore-unattainable quad play of video, voice, data and wireless that the industry has seen. It was a bold move.

AGGRESSIVE ON PRICE

Those discounts — $300 for switching lines and another $200 for consumers who purchase a new smartphone phone through the AT&T Next Plan — essentially would give DirecTV customers who switch wireless providers $500 for every line they switch. Potentially, a family of four that changes providers and buys four phones could ultimately reap $2,000 in savings, equal to more than a year of the satellite service’s top tier (the 315-channel Premier package) for free.

“I want Comcast to really regret the fact that they don’t have a wireless asset,” AT&T Internet & Entertainment CEO John Stankey said at the company’s recent Analyst Day.

Whether that plays out or not, AT&T isn’t sitting idly by and waiting for over-the-top and the rest of the competitive universe to run roughshod over its business. The telecom giant is firmly taking the bull by the horns and crafting — or at least trying to craft — a strategy that melds traditional TV viewing with wireless, mobility, retail and broadband.

By taking that bold stance and assembling the various pieces to put it in motion, AT&T is Multichannel News’s 2015 Distributor of the Year.

AT&T began to see the handwriting on the wall even before it started to pursue DirecTV last year. At the company’s recent Analyst Day, AT&T chairman and CEO Randall Stephenson added that while cord-cutting and cord-shaving continues to cut into the pay TV subscriber base, the answer could be in offering customers more flexibility in where and when they watch programs.

“TV everywhere is what’s being consumed by a lot of millennials and our research is bearing this out,” Stephenson said, adding that even as linear TV customers decline as household growth rises, it is a “manageable decline.”

Cord-cutting and cord-shaving will accelerate, Stephenson predicted, but the blow could be softer for AT&T given its additional scale and its product mix.

“What we’re seeing is [with] a $50 package on DirecTV, there’s not much difference in absolute margin to a $90 package on U-verse,” AT&T’s fiber-delivered telco TV product, Stephenson said. “There’s going to be a re-shifting of revenue and our expectation is that we can probably grow revenue per household for the foreseeable future.”

Other cable operators and purveyors of telco TV are following suit. MSOs are scrambling to pair their industry- leading wired broadband and WiFi networks with more content, while Verizon Communications, which has the fiber-based FiOS TV service as well as the largest wireless service in the country, recently launched go90, a mobile-only video service.

But according to AT&T senior vice president and chief financial officer John Stephens, AT&T is in a unique position with the DirecTV asset.

“The key for us is we have ability to deliver those services over multiple platforms,” Stephens said at the recent Goldman Sachs Communacopia conference. “A lot of others in the industry are going to be able to do it over just broadband or do it over just wireless. No one is going to be able to do it like us.

“We are going to be unique in being able to do it over satellite, over broadband, over IPTV or over wireless and we believe that changes the equation and puts us in a different position compared to any other competitor,” Stephens said.

For AT&T, the comparisons are fairly straightforward. While satellite competitor Dish Network may have the video product, it doesn’t have the broadband capability or the owner’s economic advantage over wireless; Verizon may have a broadband capability, but it won’t have satellite or the attendant scale in delivering and negotiating with content providers.

Stephens said AT&T’s approach is an integrated model that allows it to transform and transition to a mixture that also could include over-the-top video. “We understand those other business models — and I don’t mean to dismiss them at all, I’m very respectful of them — but I think we can do those and more,” he said.

BUILDING VIDEO SCALE

The deal also brings unprecedented scale to AT&T in a product line where scale has been lacking. The addition of DirecTV’s 20 million video customers to AT&T U-verse TV’s 6 million subscribers gives the combined company a level of programming clout that was heretofore nonexistent. That should translate quickly into savings on programming costs — AT&T has said DirecTV pays about $17 less per subscriber per month for programming than its U-verse customers, a gap that should close as future programming deals are negotiated.

But scale isn’t just a programming cost advantage. With additional size, the combined company can roll out new products more efficiently and more effectively market its offerings.

Scale has been the driving force in all of the deals leading up to AT&T’s DirecTV buy, only the definitions are different. For Comcast, which already was the largest U.S. cable operator with 22 million customers when it launched its $67 billion bid for Time Warner Cable in 2014, scale meant a greater opportunity to innovate and to further expand its broadband dominance. When Comcast withdrew its TWC bid in April, opening the door for Charter Communications’ $78.7 billion offer for the company, scale took on yet another different meaning.

Although Charter will more than quadruple its size to about 17.2 million video customers with the addition of TWC and Bright House Networks, CEO Tom Rutledge has said publicly that additional scale means a way to more efficiently market and distribute services, as well as lower programming costs.

UBS telecom analyst John Hodulik wrote in a recent note to clients that the additional video heft DirecTV brings to the table is key to AT&T’s overall growth, particularly as customer viewing habits change.

“DirecTV is critical to the company’s future, as video consumption on multiple screens continues to increase,” Hodulik wrote.

Stephens said the strategy is simple — give customers what they want, when they want it. The addition of DirecTV adds a compelling video product to what was already a popular wireless and wireline broadband offering. And by adding DirecTV, AT&T opens up a vast, untapped market for its wireless services. About 15 million DirecTV customers do not have AT&T wireless. On the flip side, 21 million of AT&T’s wireless customers don’t buy DirecTV service.

“We believe that there’s a real opportunity to bundle, to sell and put those things together,” Stephens said at the Goldman Sachs conference. “We’ve built out 57 million broadband locations and up until the DirecTV deal, about 30 million of them didn’t have a TV product. Now they do.”

The DirecTV deal also opened up all of AT&T’s 2,300 retail stores to a video product. Up until the deal closed, video was only available in stores within the U-verse footprint.

But this opportunity comes just as the entire pay TV industry, not just cable, is showing signs of decline. AT&T U-verse reported its first quarterly subscriber loss ever in the second quarter, shedding 22,000 video customers. At the same time, DirecTV lost about 133,000 net new subscribers.

Stephens blamed the losses on a combination of typical second-quarter seasonality — that is when college students disconnect service after the end of the school year and residential customers move to their summer homes — and a change in its promotional habits.

AT&T is moving more toward higher-end, more profitable, longer-term customers, and is pulling back on promotional activity, Stephens said.

“We have gotten out, measurably out, of the promo business in the second quarter and decided to be much more disciplined with our sales efforts and much more focused towards the long term value customers and so that was part of the impact,” Stephens said, adding that the activity around the DirecTV deal probably did have some small impact as well.

“With that being said, it’s transforming like everything else,” he said. “All parts of our industry are transforming, and that’s all that’s going to go on with pay TV and the over-the-top.”

AT&T also is in the middle of a massive buildout of its broadband infrastructure. The telco continues to expect to boost broadband speeds and now plans to expand its high-speed Internet service to reach more than 60 million customer locations by the end of 2018. The company also plans to expand its all-fiber broadband footprint, reaching more than 14 million homes when the build-out is complete.

Those plans haven’t been enough to staunch the criticism of the DirecTV deal, which many analysts have said is a desperate attempt to gain market share by paying too much for a declining asset.

“In the end, AT&T just bought yesterday’s technology in DirecTV at the all-time peak and are melding it with their mostly antiquated, copper-based fixed-line infrastructure,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said after AT&T announced its wireless discounts. “This architecture, in my view, will inevitably lose no matter how much money they throw at marketing it.”

While DirecTV’s second quarter net subscriber loss was dramatic, customer growth has been on a steady downward path since 2009, when it reported a gain of 939,000 net new subscribers. According to DirecTV’s financial filings, it gained 663,000 net new customers in 2010; 662,000 in 2011; 199,000 in 2012; 169,000 in 2013; and 99,000 in 2014.

“All of this is AT&T’s problem now,” said Moffett-Nathanson principal and senior analyst Craig Moffett in a recent report. Moffett added that AT&T’s wireless discount offer in August — which, he wrote, “takes promotional discounting to a reckless new extreme” — sends a pretty clear message that the intention is to buy market share.

“Those kinds of offers will inevitably help unit growth, but not with profitability,” Moffett wrote.

AT&T has blamed the second quarter losses at DirecTV on stricter subscriber policies, something that Moffett has praised in recent reports. But that means AT&T will have to figure out a way to increase volumes without sacrificing profitability.

“That won’t be easy,” Moffett wrote in a recent report. “Beyond the lower programming costs for U-verse customers, the synergies from combining a copper broadband infrastructure and a satellite-TV delivered video business are limited, and substantial discounts will be necessary to get customers to adopt a bundle that includes wireless with satellite TV.”

AT&T thinks it can get there not just with heavy promotional activity, but through innovative pricing, packaging and keeping a keen eye on customer habits. The telco believes it has a tremendous opportunity in bundling its products together to take advantage of the 57 million homes it passes with its broadband and wireless networks. But in typical telco fashion, AT&T wants its results to speak for its actions.

“We’ve got to do some more work,” Stephens said at Communacopia. “The proof will be in our results, but, yes, we absolutely feel optimistic about the revenue opportunities. We are just going to be careful to get it done first and talk about it later.”

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SIDEBAR: Cable’s Tortured History With Wireless Plays

The cable industry has a long, dubious past with the wireless industry, and one it would probably prefer to forget.

Cable operators first dipped into the cellular business in the 1980s, but had sold most of their licenses by the next decade, spooked by the high cost of network buildouts and cutthroat competition.

But like Al Pacino’s Michael Corleone in The Godfather: Part III, the wireless business kept pulling cable back in. Cable operators participated in Sprint PCS, the digital communications joint venture with the cellphone giant, with Comcast, Cox and Tele-Communications Inc. investing a combined $4 billion in the early 1990s. The partnership officially dissolved in 1999, when Sprint offered each of the partners Sprint PCS tracking stock in exchange for their interests in the partnership.

The cellular bug bit again in 2005, when Comcast, Cox Communications, Bright House Networks and Time Warner Cable all invested in a wireless partnership with Sprint that was initially supposed to include wireless video. Bandwidth constraints and rights issues hampered that part of the agreement, but the partnership continued on for three years, offering a wireless phone service dubbed Pivot (no relation to the cable network), that was sold by cable operator as well as in RadioShack stores across the U.S. That union also was scrapped in 2008 after disappointing sales.

Comcast, TWC and Bright House, along with Google and Intel, turned to WiMax pioneer Clearwire in 2008, investing a combined $3.2 billion to help the company build out a nationwide network. But bigger efforts by carriers like AT&T Wireless and Verizon Wireless in LTE technology and 4G overshadowed Clearwire’s plans, and by 2012 the cable partners were out of the picture. Sprint ended up buying the rest of Clearwire later that year for about $2.2 billion and has basically used its spectrum to augment its traditional wireless service.

Cable operators participated in wireless spectrum auctions too, forming SpectrumCo, a consortium of Comcast, Cox, Time Warner Cable and Bright House Networks that bid about $2.4 billion in the Federal Communications Commission’s 2006 Advanced Wireless Services auctions. But the operators apparently lost their appetite for cellular service in 2012, when the consortium sold its licenses to Verizon Wireless for $3.9 billion. That deal included an MVNO agreement with Verizon that has yet to be tapped.

Cox held on to its licenses and launched an ill-fated cell service in 2010, shuttering that offering by 2011 due to weak sales and an inability to gain access to “iconic” handsets, which most believed was a reference to Apple’s iPhone.

Cable turned its wireless aspirations to WiFi, which has been a wildly successful retention tool for its industry-leading broadband service. While reports have said Comcast was negotiating with Verizon to amend the MVNO agreement, most analysts believe WiFi will remain top of mind for cable operators.

Charter Communications CEO Tom Rutledge, one of the early cheerleaders for WiFi — he helped Cablevision Systems pioneer the service with its 2008 WiFi network buildout — has said there still may be room for cable in the mobility business.

“We’re going to be stepping into MVNO relationships in our new company [Time Warner Cable],” he said at a Goldman Sachs conference. “That may be a path forward. There’s also the ability to acquire licensed spectrum and begin to build assets in conjunction with WiFi assets. And you can actually put WiFi and licensed spectrum in the same radio camps that you hang on the poles.

“And so there is some combination, maybe of all of that, that creates a customer-relationship stickiness that doesn’t exist today,” Rutledge said.

— Mike Farrell

SIDEBAR: Building a Unified Video Front

AT&T’s acquisition of DirecTV presents significant opportunities and challenges.

While the post-merger company now has a combined U.S. video base of 26 million, taking advantage of this new scale will require it to establish a unified video platform.

AT&T has not outlined its full plan for that, but it’s been dropping plenty of hints.

Of recent note, the company hired Enrique Rodriguez, a former Cisco Systems and Microsoft executive who most recently was with Sirius XM, as executive vice president and chief technical officer. Rodriguez, who knows a lot about Mediaroom (the IPTV platform that currently powers U-verse TV), will be taking a lead role in the technical integration of the U-verse and DirecTV services.

AT&T has also tapped Ericsson (which bought Mediaroom from Microsoft in 2013) to assist as the pay TV operator “enhances” the telco’s TV platform and help AT&T evolve its satellite and wireline TV platform.

AT&T has also announced that it will use a derivative of DirecTV’s gateway-client “Genie” architecture to establish a more uniform, cloud-based video platform for the combined company.

— Jeff Baumgartner

The word Friday from a host of industry sources tracking government vetting of the $48.5 billion merger between AT&T and DirecTV is expected to get the green light from the FCC and the Department of Justice soon, with negotiations over deal conditions wrapping up and a decision coming likely within "days" or at most a couple of weeks.

While it's never over until it's over, multiple sources said the deal would be approved, perhaps as early as next week.

The proposed merger never drew the kind of pushback from anti-consolidation activists that the failed Comcast/TWC merger did.

The FCC stopped its informal shot clock on the deal and is not expected to restart it until it is about ready to decide.

The clock is currently on day 170, though the deal has had months of stoppage time while the FCC collected more documents and waited for a court decision on third-party access to contracts.

The deal was actually struck in May 2014, but after the document and court delays on the deal vetting, the companies moved their break-up trigger from May to August.

The merged AT&T-DirecTV entity will almost certainly have to abide by net neutrality conditions. Likely they will have to adhere to the three bright-line rules against blocking, throttling and paid prioritization, and perhaps agree to fair and reasonable interconnection deals rather than having to swear allegiance to the Title II regime, though one industry attorney thought the optics of getting a major ISP to commit to Title II might be tempting for the commission.

AT&T and other ISPs who have sued the FCC over Title II reclassification have said they are not challenging those bright-line rules, just the way the FCC arrived at them.

DirecTV reported better than expected net new subscriber growth in the U.S. in Q4, helping to drive domestic revenue and cash flow up by mid-single digits in the period.

DirecTV ended the quarter with 20.35 million customers in the U.S., driven by better than expected gross subscriber additions and lower churn.

"[I]n the U.S., despite operating in a mature, hyper- market with significant cost pressures, we were able to improve our OPBDA margins for the third consecutive year and surpass all of our 2014 plans for subscriber, revenue, OPBDA and cash flow growth, while also making significant headway on improving both the customer service and entertainment experience,” DirecTV CEO Mike White said in a statement. “The focused performance of our two primary segments resulted in a 21% increase in our consolidated free cash flow, topping $3.1 billion for the year - and leaving us with $4.6 billion of cash on the balance sheet at year end."

Overall fourth quarter revenue increased 4% to $8.92 billion, operating profit before depreciation and amortization (OPBDA) and operating profit decreased to $2.00 billion and $1.26 billion, respectively, and diluted earnings per share was unchanged at $1.53 compared to last year's fourth quarter.

In the fourth quarter, DirecTV U.S. revenues increased 5% to $7.14 billion compared with the fourth quarter of 2013 primarily due to strong ARPU growth along with a larger subscriber base. ARPU increased 5.0% to $117.30 mostly due to price increases on programming packages, higher advanced receiver service fees, higher ad sales, increased commercial business revenues and higher set-top box lease fees. These improvements were partially offset by increased promotional offers to existing customers and lower revenues from pay-per-view events. DirecTV U.S. ended the year with 20.35 million subscribers.

DirecTV U.S. net subscriber additions of approximately 149,000 increased compared to the prior year period principally due to higher gross subscriber additions and a four basis point improvement in the average monthly churn rate. The increase in gross additions was mainly associated with a successful new ad campaign, enhanced promotions, wider distribution in the consumer electronics channel and competitor programming disputes. The decrease in the monthly churn rate was primarily due to lower voluntary churn from improved retention practices, as well as more successful winback offers.

"2015 will bring additional challenges to our businesses, but given our solid continued operating momentum and the pending merger with AT&T, I am confident that we will continue to drive value for our shareholders for the foreseeable future,” White continued.