The long-term strategy of AT&T Inc. (NYSE:T) beyond CEO Randall Stephenson is now clear. Sell access to video, wherever a customer is and however they want to buy it, and then control that medium. This approach is what makes AT&T stock so appealing to long-term investors.
The pending purchase of Time Warner Inc (NYSE:TWX), which may require a little Washington financial grease to be finished, is the less-important part of the strategy.
The key is access to news and entertainment wherever and however the customer wants it. That’s where DirecTV Now enters the picture. The new streaming service gives AT&T a complete suite of solutions for delivering its content to subscribers, with wireless, satellite and landline, as well as a complete set of subscription plans that support each other in the market.
Media backed by Comcast Corporation (NASDAQ:CMCSA) venture capital, such as The Verge, may call this the end of the open internet but more important than ownership of content is control of the customer. That’s the AT&T stock end game.
T Stock: Owning the Customer With DirecTv Now
I recently switched to AT&T for internet and TV because the company bundled those subscriptions with my wireless setup and saved me about $60 per month over the separate subscriptions I had previously with Comcast and my wireless plan.
This is called customer control.
DirecTv Now is also about customer control. The company will deliver a “zero rating” for DirecTv Now subscribers on its wireless network, meaning they will automatically save money on the TV bits. If they use competitors Verizon Communications Inc. (NYSE:VZ) or Sprint Corp (NYSE:S) to get these DirecTv wireless bits, they’ll pay for them.
The competitiveness of any service is less important than AT&T’s ability to deliver discounts to steady customers who give it control over those accounts. This was the key to the success of the Bell System — regular monthly income — and it’s the key to the new AT&T as well.
It all means that without substantially expanding its capital investment, AT&T stock will be able to secure steady streams of income that let it sustain the 49 cents per share is pays in dividends, which now yield 5% to new investors and nearly 7% to those who bought T stock five years ago, when it was at $29 per share.
Very few stocks are like AT&T stock, which can offer these kinds of returns and an assurance they will continue indefinitely. This, rather than the immediate competitive prospects of DirecTv Now against competitors like SlingTV, are what make this a big win for T stock investors.
AT&T Stock: Immunity From the Market
You are not buying AT&T stock so you can follow every move of the company in stories like this one. You are buying T stock to gain some level of insulation from the accelerating change that makes you look at your other holdings every day.
This is also why Time Warner executives want to sell their company to AT&T. Vertical integration means news and entertainment decision makers answer to corporate executives, not to public shareholders.
NBC Universal, its cable and broadcast networks, its movie studio and its theme parks, all have that under the wing of CMCSA, and this lets it engage in long-term thinking, long-term risks on shows or franchises that would not be possible otherwise. Comcast will now be under pressure to increase the penetration of its own wireless offerings to compete more directly with AT&T, and share its vertical integration gains.
Verizon wants the same thing for the internet advertising cash flow it bought through AOL and the cash flow it intends to obtain with Yahoo! Inc. (NASDAQ:YHOO).
The financial heft of content also insulates the capital budget from public scrutiny. So long as the dividend remains intact, capital-heavy companies like AT&T stock, Verizon and Comcast are free to adjust capital budgets up-and-down as they see fit. When entertainment is profitable, spend more on equipment. When it’s less profitable, spend less. Just maintain a steady hand on the capital tiller in Dallas, steering straight ahead.
The secret of the market is that everyone praises it to the sky but, in the end, they all want insulation from its discipline. That’s what T stock is aiming for, the kind of immunity from public scrutiny Comcast, whose venture capital arm controls critics like The Verge, now enjoys.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
