Next week, we’ll get an important earnings update from AT&T that will include a crucial update on the progress of AT&T’s DirecTV numbers, which have been in an alarming decline for the past year. The picture may not be pretty, considering some recent discoveries I have made about AT&T’s confusing pricing strategy for DirecTV.
More on pricing and AT&T’s blatant disrespect for customers later, but first let’s emphasize why DirecTV is so important to AT&T. The North American service provider has been adding massive amounts of debt to its balance sheet lately, accumulating $80 billion of additional debt in just the last four years—leaving it with a total of more than $160 billion in short- and long-term debt. A lot of this is tied to the 2015 purchase of DirecTV. The big question is, why did the geniuses at AT&T in 2015 spent $50 billion on DirecTV just before the company needed billions of dollars on a 5G upgrade cycle that is likely to accelerate cord-cutting and flood their expensive networks with more video bits from competitors?
I haven't gotten any closer to understanding this deal. In the last quarter, AT&T announced it had a net loss of more than 350,000 DirecTV subscribers. In the face of the threat from cord-cutting, AT&T is raising prices for DirecTV. A recent personal experience I had with DirecTV reveals that the pricing structure is irrational and confusing, which may make the problem worse.
My experience with DirecTV
According to my DirecTV customer retention specialist, I’ve been a DirecTV customer for 10 years, a history that is rife with dissatisfaction. They recently tried to jack up prices again.
AT&T informed me at the beginning of the year that my costs would be rising substantially in 2019. Frankly, I hadn't been paying much attention, mostly because with three teenagers and a kid in college, most of my bills have been growing as fast as the marijuana industry. I decided to delve into my cable bill more deeply, and I found charges rivaling the GDP of a developing nation.
I'm embarrassed to say that once I went over the charges, I found that my cable bill had risen from below $90 a month to in excess of $150 a month in just a few years. Granted, I had subscribed to many premium offerings due in part to my voracious appetite for European football. The way this works is simple: I got sucked into teaser offerings that have long since expired. Just a few years later, with the teaser rates expired and price hikes kicking in, I found I was paying at least 140% more than what I once paid for my ridiculous package of premium content which includes everything except the World Curling League. (Disclaimer, the WCL is a made-up thing and is in no way related to the World Curling Federation.)
Time to hit the war room. I consulted with a friend, who told me that DirecTV is constantly raising their prices. Then I spent 10 minutes on Google research to find out “the price.” It turns out, there is no standard pricing. DirecTV pricing is all over the map. The advertised prices you see online are special teaser prices designed to lock you in and then spiral out of control like credit-card interest rates.
What to do? After about 30 minutes wrangling with the useless DirecTV Website, which hangs on every page and does not actually let you change your cable package online, I dialed into DirecTV "customer service." The usual: the 10-15-minute hold, the hang-up, the re-call, the hold again and then the dreaded "You don't have the right department" transfer to another department, where I spoke to a "customer retention specialist."
This worked. The nice man, with a robust American accent reminiscent of the Midwest, lowered my price. Substantially. Almost as low as the advertised teaser rates. Though my deal is only good for a year. And then it will jump again. "What do I do then?" I asked him. I ask the friendly customer retention specialist. "You call back," he deadpanned.
What this means for DirecTV
It’s entertaining to me that apparently I need to go through the ritual of calling back every year to get the best price, otherwise the cost will jump 50% or more. Is this any way to run a business? Clearly, DirecTV has decided to churn and burn customers with a wildly unpredictable and nontransparent pricing strategy.
Now look at the Netflix model. Granted, Neflix just announced it’s raising its pricing. The premium officer is now $13.99, up $2 from the $11.99 announced in 2017. But that’s still very cheap, and it allows my entire family to consume unlimited amounts of high-quality video, whenever we want, with a fraction of DirecTV’s cost. Using broadband pipes, supplied by the service provider, of course.
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The more I think about it, the more this doesn't paint a pretty picture for AT&T's DirecTV prize, which has hemorrhaged hundreds of thousands of subscribers last year. This is why next week’s numbers will be so important.
My suspicion is that the DirecTV pricing confusion—and this year’s price hikes—won’t have a beneficial effect on its customer base and may in fact accelerate cord-cutting. And it's not clear to me how 5G will help this scenario, other than adding more motivation to cord cut.
DirecTV, you've got issues.
R. Scott Raynovich is the founder and chief analyst of Futuriom. For two decades, he has been covering a wide range of technology as an editor, analyst, and publisher. Most recently, he was VP of research at SDxCentral.com, which acquired his previous technology website, Rayno Report, in 2015. Prior to that, he was the editor in chief of Light Reading, where he worked for nine years. Raynovich has also served as investment editor at Red Herring, where he started the New York bureau and helped build the original Redherring.com website. He has won several industry awards, including an Editor & Publisher award for Best Business Blog, and his analysis has been featured by prominent media outlets including NPR, CNBC, The Wall Street Journal, and the San Jose Mercury News. He can be reached at [email protected]; follow him @rayno.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.