Donovan: AT&T’s New Streaming Video Offering ‘Radically Reshapes’ TV Concept

AT&T Communications CEO John Donovan said the phone company’s as-yet unnamed streaming video service will “radically reshape” customers’ concepts of television service, but added that subscriber losses at its more traditional TV offerings will continue.

“It’s the consumer product I’m most excited about since the iPhone. It radically reshapes what your concept of television is,” Donovan said of the new streaming service at the Credit Suisse Communications Conference in New York. “We think we’re going to be really disruptive in the market on features and capability, but we need to evolve our product. And that’s the way we want to do it.” 

Donovan, who has responsibility for AT&T’s wireless, wireline and video distribution businesses (accounting for roughly 80% of overall revenue), said video losses over the past few quarters were expected as AT&T transformed its concept of the business.

AT&T lost about 544,000 customers at its DirecTV satellite TV unit and shed another 83,000 customers at its streaming DirecTV Now business in Q1, mainly as the company removed heavy discount offerings from its lineup. At the Credit Suisse conference, Donovan said the losses were a combination of the overall secular decline in the industry and “customer cleanup,” which he said will continue through most of this year.

John Donovan

John Donovan

“There are a set of customers that are going to only be in the market to buy [a fixed service] below the cost,” Donovan said. “...In the early days of a decline curve, the first thing you want to do is grab all of the customers. That’s really good logic because if you’re going to make a big technology shift, you want to do that with the customer. I think now we’re getting a lot better handle on the sub-segmentation of this and beginning to understand who gets the most value from the product.”

But he admitted that the past practice of many OTT services, including his own, of providing video service at a loss can’t be sustained for the long term.

“The fundamental issue around TV is -- using broad-brush numbers -- you have to know what the customer is willing to pay 100 bucks for,” Donovan said. “Trying to give them 100 bucks of value for $40 or $50 or $60, that’s not going to be a fit that is going to work for the customer or the organization in the long run.”

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Donovan said that almost every company in the industry is trying to figure out what model will work best as consumers shift from just wanting more stuff to wanting the stuff they want.

“The most important thing we have to do is to address broader price points that are much broader than simply saying ‘Do you want HBO or Cinemax or not,’ ‘Do you want the upgraded sports package or not,’” Donovan added. “That’s how we differentiated before. Good, better, best were just three content offers. But those didn’t stretch far enough. And so we’re going to have to build new products that stretch across a wider range.”

That would be AT&T’s latest streaming service -- slated for a Q3 beta launch -- Donovan said.