(Bloomberg) — AT&T Inc. is putting its new Time Warner arsenal of media properties to work, unveiling plans to roll out a three-tiered streaming-video service to compete with Netflix Inc.
One of the new products launching late next year will be a movies-only plan, the company said on Thursday. Another will have original programming as well as blockbuster films. And the highest-priced choice will include content licensed from other companies.
AT&T will have plenty of competition. Walt Disney Co. is introducing an online service with Star Wars and Marvel shows around the same time, and Jeffrey Katzenberg has a new short-form video project in the works. But AT&T Chief Executive Officer Randall Stephenson has to find new ways to retain TV viewers: His DirecTV Now online streaming service is going to lose subscribers this quarter and next, AT&T said.
The telecom giant provided the latest details as part of a presentation to analysts and investors, who are looking for signs that the company can get a payoff from its $85 billion Time Warner deal.
A surprising loss of both TV and wireless subscribers in the third-quarter raised concerns about the company’s core business and drew attention to its $183 billion debt load and a costly 5G network expansion ahead. AT&T’s top executives attempted to address those worries by targeting a leverage ratio of 2.5 times net debt to earnings before interest, taxes, depreciation and amortization by the end of 2019, down from the current pro forma ratio of 2.85 times. To raise cash to pay down debt the company suggested it could sell assets like real estate or its 10 percent Hulu stake.
“We believe AT&T’s analyst day was constructive and should help ease concerns around growth and pathway to delever,” UBS analyst John Hodulik wrote in a note Thursday after the event.
AT&T shares, which are down 21 percent this year as of Thursday, rose as much as 2.8 percent to $31.43 Friday. The stock was up 2.4 percent to $31.29 at 10:14 a.m. in New York.
In September, Stephenson said he planned to use Time Warner’s HBO as the anchor for the new online video service and surround it with Warner Bros. shows and films — and possibly sports programming.
During a question-and-answer session with analysts, AT&T media chief John Stankey tried to allay concerns that the company’s various video options would confuse customers. In addition to the upcoming streaming service, the company has multiple tiers of DirecTV Now.
To narrow its focus, WarnerMedia — the new name of Time Warner — has already started to reduce the number of niche consumer subscription services, such as FilmStruck. He said the company is moving toward a more “unified library” of content. This centralized system will help serve both the upcoming video-on-demand service as well as play an important role in beefing up the DirecTV Now offerings.
Stankey also suggested that rival video-on-demand services like Netflix and Amazon are facing shorter-length content licenses — in other words, they won’t have shows and movies locked down for as long. As they lose the rights to well-known entertainment properties, they’re in a race to create more original content.
AT&T faces less of that pressure because it now owns the media libraries of Turner, HBO and Warner Bros., Stankey said.
(Updates with shares in seventh paragraph.)
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