When AT&T (NYSE:T) talked up plans for a streaming version of its DirecTV satellite service a week ago, followed by news breaking of plans for a new WarnerMedia streaming service, T stock got a nice bump. That trend continued with AT&T stock hitting a new high for 2019 at Friday’s close. However, it appears the second guessing has begun. After opening at $32.69 on Monday morning the AT&T stock price had dropped to $31.93 at close, shedding 1.69% of its value.
Why the reversal? It could that investors have had time to think through the company’s plans for DirecTV and WarnerMedia’s streaming, and found them wanting.
T Stock Gets a Boost From AT&T’s Streaming Video Plans
June 5 and June 6 were big days for AT&T, at least when it comes to the company’s plans for taking on streaming video giants like Netflix (NASDAQ:NFLX).
On June 5, AT&T’s CEO was at the Credit Suisse investor conference, talking up a new streaming version of DirecTV expected to launch this fall. DirectTV has been bleeding subscribers, eating into revenue and acting as a drag on AT&T stock price. AT&T thinks it has a solution, by offering the satellite TV service as a streaming product, eliminating the need to install a satellite dish. This cuts service costs for AT&T, and opens up a larger market since some areas can’t get a reliable satellite connection.
The next day, news broke in the Wall Street Journal that AT&T is leveraging its $85 billion purchase of Time Warner to launch a WarnerMedia streaming package this fall. According to the WSJ report, the WarnerMedia streaming service would be priced in the range of $16 to $17 per month, and may include both HBO and Cinemax.
As news broke of AT&T’s emerging streaming strategy, T stock began to post gains.
Second Guessing Begins
Now that we’ve had a few days to digest AT&T’s plans, questions are starting to emerge.
On the DirecTV front, what does the new streaming version of the service mean for the existing DirecTV Now streaming services? They are “lighter” versions of the DirecTV satellite service that don’t offer access to as many channels. And will DirecTV end up competing for customers against the new WarnerMedia streaming service?
Yesterday, Bloomberg published an editorial suggesting AT&T would be better off selling DirecTV — and soon. The argument is that rival satellite provider DISH Network Corp (NASDAQ:DISH) wants to expand to take on streamers. After the U.S. Justice Department lost its bid to block AT&T’s acquisition of Time Warner, now is the time to take advantage of that openness to mergers to sell off DirecTV.
AT&T could then use the proceeds to help pay down the debt of its Time Warner purchase, which would have a positive effect on T stock.
There are also questions around the WarnerMedia streaming service.
If the company does bundle it with HBO, the new streaming service would end up competing against its own $14.99 HBO Go streaming service — with the addition of Time Warner movies, Cinemax and its own original content.
There are also concerns about the pricing. It does include premium HBO service, but at $16 or more, the WarnerMedia streaming service may have trouble competing against Netflix, which currently starts at $8.99 monthly for non-HD service. And then there’s Walt Disney Co’s (NYSE:DIS) Disney+ streaming service which launches this fall at $6.99 per month.
There are worries that with so many streaming services to choose from, and a cord-cutting consumer mentality (i.e., reducing cable costs), the new WarnerMedia streaming service may have difficulty in signing up subscribers.
The fact that the company is beginning to make big moves toward launching new streaming video services was a positive sign that helped boost T stock. However, once second-guessing of that strategy began in earnest on Monday, AT&T stock began to slide. On Monday that meant a 1.69% loss.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.