Invest in enough companies and eventually you’ll come across some unpleasant surprises that force you to reassess your exposure. That’s what happened recently with AT&T (NYSE:T). As I shared a few months back, I bought some long-side exposure to T stock primarily for its 5G potential. But the telecom giant is much more than 5G, as its acquisition of Time Warner proved.
Like other blue chips that have come up against slowing growth in their primary markets, AT&T expanded aggressively into media and content. It’s similar to the path taken by rival Verizon (NYSE:VZ). While the broader moves have their strong points, they also have their weaknesses.
A recent rumor now has many folks questioning the AT&T stock price, up 3.8% in June versus an almost-1% drop in the 76-stock iShares Global Comm Services ETF (NYSEArca:IXP), which includes both T stock and VZ shares among its top five holdings, each at a 6.72% weighting. Of course, AT&T shares also sport a choice 6.67% dividend yield.
According to The Wall Street Journal, WarnerMedia has abandoned its plan to offer streaming services divided into three pricing packages. Instead, the AT&T unit will bundle HBO, Cinemax, and several Warner Bros. TV shows and movies as one offering. But that’s not the only thing presenting a longer-term cloud on T stock.
Instead, it’s the rumored pricing of this “one shot” package. At just $16 to $17 a month, it’s only slightly more expensive than HBO’s current streaming service. To paraphrase Fast Company’s Jared Newman humorous take, it’s like paying more to get HBO than buying regular HBO.
If that wasn’t bad enough, both offerings are priced well above Netflix (NASDAQ:NFLX) and Disney’s (NYSE:DIS) new Disney+. Even here, there’s nothing AT&T can do about it due to complex relationships with distributors like Comcast (NASDAQ:CMCSA) and Dish Network (NASDAQ:DISH). The company appears stuck, which hurts the outlook of the AT&T stock price.
But does this mean you should give up on T stock? Not quite yet, and here’s why:
T Stock Benefits as Consumers Chase Content
Admittedly, AT&T’s pricing scheme is a huge distraction. I’ve worked in business planning and retail long enough to understand that this is begging for cannibalization. Ideally, I’d like to see a bigger gap to compel consumer-volume efficiencies. Although it’s giving executives headaches — and freaking out some T stock holders — original content is one possible longer-term solution.
But content is also a definite answer to the other criticism badgering AT&T stock right now: the comparative premium against streaming competitors. Granted, it’s not necessarily a great thing when you’re priced above everyone else. However, it’s not necessarily a deal-breaker.
In this case, I think it’s a deal-maker. Why? Because AT&T with its albeit costly acquisition is now a content king. And speaking of kings, queens, and dragons, we recently got a taste of why some contrarians believe in T stock.
HBO’s Game of Thrones racked up record viewership numbers for its series finale. The last episode garnered so much controversy that nerds everywhere demanded producers re-do the ending.
Despite the outrage, I’m licking my lips at where the AT&T stock price can ultimately go. Viewers are obviously not chasing the streaming platform for platform’s sake. Instead, they’re very much chasing the content.
Unsurprisingly, HBO is eyeballing a prequel and several spin-offs, with one of these projects reaching the pilot stage. We all know that spin-offs don’t exactly have the greatest track record. Then again, very few. if any, shows have over 1.6 million people demanding producers re-write an entire season!
You know what else? People are very fickle about online petitions. This sucker has grown exponentially. AT&T has nerd legions to sell to, and that’s a huge benefit to T stock.
Streaming is Cheap Across the Board
I work with several millennials who are, shall we say, not the most fiscally secure. But they have no problem spending money on the goods and services that matter to them. And really, millennials and the emergent Generation Z are young and alive at the best possible time.
You’ve got to look at the nominal price structure across the board. Streaming is very cheap, especially compared to the antiquated satellite and cable services. You get on-demand entertainment for a couple cents per day.
In other words, not much pricing pressure exists among the streaming providers. If you really love Netflix originals and you’re a diehard Thrones nerd, why not get both? Even with premium pricing, you’re looking at comprehensive entertainment for a little over $30 a month combined.
And with prices this low, the focus isn’t on the very modest hit to the wallet. Instead, it’s the content. AT&T makes a compelling case here, which is why I’m not worried about my position in AT&T stock.
As of this writing, Josh Enomoto is long T stock.