The Desk appreciates the support of readers who purchase products or services through links on our website. Learn more...

AT&T chief admits buying DirecTV was a mistake

In a candid interview, John Stankey said his predecessor failed to recognize the trend of cord-cutting for what it was.

In a candid interview, John Stankey said his predecessor failed to recognize the trend of cord-cutting for what it was.

(Image courtesy the Economic Club of Washington DC, Graphic by The Desk)

The chief executive of AT&T admits his company’s purchase of satellite television giant DirecTV was a mistake, adding that his predecessor who oversaw the merger likely didn’t fully recognize the increasing trend of consumer moving away from traditional pay television toward cheaper online offerings.

The comments were made by John Stankey during a recent virtual appearance at the Economic Club, a not-for-profit organization that hosts a series of speaking events with business executives and leaders throughout the year.

AT&T purchased DirecTV in 2015 for $67 billion in 2015, a price that included around $18.5 billion in debt. At the time of the merger, AT&T was proclaimed to be the largest pay television provider in the United States, fusing DirecTV’s 21 million video subscribers with around 4 million customers who paid for AT&T’s U-Verse video offering.

At the time of the transaction, Randall Stephenson was AT&T’s chief executive. He installed Stankey to serve as the chief executive of AT&T’s newly-formed Entertainment & Internet Services division.

What came out of the transaction was a series of missteps: AT&T used its market dominance to launch a new streaming television service called DirecTV Now (later AT&T TV Now, and now AT&T TV), which grew to become one of the largest streaming pay television services in the country thanks to a deep discount on its introduction price (at one point, subscribers could get three months of DirecTV Now for just $10 a month before being asked to pay $35 a month, the service’s regular retail price).

But AT&T could not keep up with the rising cost of programming: It hiked subscription fees on DirecTV and its streaming service regularly, to the point where it accelerated the number of customers dropping the service for cheaper online offerings.

Those who wanted pay television services over the Internet fled to competitors like Google-owned YouTube TV or the Walt Disney Company’s Hulu with Live TV, both of which offer more features and channels compared to AT&T’s streaming service.

Saddled with debt, AT&T announced plans earlier this year to spin off its DirecTV, U-Verse TV and AT&T TV businesses into a separate company.  TPG Capital, a private equity firm, agreed to purchase a 30 percent share of the new company, which will be called DirecTV.

On Thursday, Stankey — now the chief executive of AT&T’s overall businesses — said the DirecTV acquisition was, in retrospect, a bad idea.

“As we’ve indicated in some of the actions we’ve taken as of late that the DirecTV transaction didn’t generate the kind of value long-term that we expected in the front end,” he said, adding that his predecessor likely didn’t anticipate the vast number of consumers ditching pay TV services like DirecTV for cheaper streaming options.

“In hindsight, is it a transaction that one would have undertaken if it knew everything that it knew today? And the answer to that is, probably not,” Stankey affirmed.

AT&T’s deal with TPG Capital implies DirecTV’s value is now around $16.25 billion, according to CNBC, about one-third of what AT&T paid for it nearly a decade ago. When asked by a moderator on Thursday if the company will ever fully recoup its investment in the service, Stankey said he was not sure.

“It’s possible that some of the subsequent transactions around that could re-capture some of that value,” he said. “That final chapter hasn’t been written.”