AT&T reported its Q4 ’19 earnings this morning and in the “Entertainment Group," it was U-G-L-Y. The top line numbers are mind-boggling: 945K “premium video” subscribers (DirecTV and U-verse) lost and 219K “OTT video” subscribers (DirecTV Now and AT&T TV) lost for a total of 1.164 million lost. In Q4 ’18, AT&T lost 391K premium subs and 267K OTT subs for a total of 658K subs lost. So the Q4 ’19 sub loss was 77% higher than the Q4 ’18 sub loss - although in the category of “cold comfort,” it was 14% lower sequentially vs. Q3 ’19 when AT&T lost 1.36 million combined video subscribers.

But broaden the lens to consider full year 2019 vs. full year 2018 and things look even worse. In 2018 AT&T lost a total of 750K subscribers (a result that was helped enormously by the addition of 654K total DTV Now subscribers in first half of the year, more on that below). In 2019 AT&T lost 4.1 million subscribers or more than five times the prior year.

Taken together, the 4.8 million combined lost video subscribers from 2018 and 2019 translate into a loss of over 19% of AT&T’s video subscriber base of 25.2 million as of December 31, 2017. Over 19%! AT&T is truly the “sick man” of the pay-TV industry.

It wasn’t that long ago when it seemed like DirecTV Now, the company’s “virtual MVPD” might actually compensate for AT&T’s traditional MVPD losses. But in Q3 ’18 AT&T shifted strategies, essentially abandoning aggressive marketing and price promotions for DirecTV Now and focusing on the AT&T TV service. From Q3 ’18 through Q4 ’19, the vMVPD business has lost over 880K subscribers.

Separate from subscribers, AT&T also revealed its Q4 ’19 revenues “reflect around $1.2 billion impact from foregone content licensing.” While no further detail was provided, this almost certainly is due to AT&T pulling “Friends” off Netflix (among other titles) and moving them to HBO Max when it launches in the next few months. It’s not clear whether the $1.2 billion reflects a one-time reduction (e.g. recognizing the total of all future licensing revenues that AT&T would have received, or, if there could be ongoing licensing revenue shortfall in coming quarters).

Either way, the reduction is just one of the hidden costs of “Peak TV.” As the crown jewels of TV’s archive (not just “Friends,” but “The Office,” “Parks and Recreation,” etc.) move from distributors like Netflix, Amazon and Hulu to direct-to-consumer services, the ultimate parent company (in “Friends” case, AT&T) lose out on the distribution revenue they previously received. And of course, in addition to these losses, AT&T, etc. have to invest billions of dollars in building out their DTC services. All of this is another reason the “Peak TV” arms race is really unsettling for the industry long-term.

Meanwhile, the debate about what will happen with cord-cutting continues to rage. Some analysts believe the rate of cord-cutting could actually moderate in 2020 -  the thinking goes that the industry has already lost a solid portion of its vulnerable sports and news non-viewers so there are fewer left yet to cut the cord. The alternative view is that with new streaming services flooding the market (e.g. Disney+, Apple TV+, Peacock and soon HBO Max), and viewers shift their time spent with TV to streaming, they will continue to drop expensive pay-TV.

I tend to be in the latter camp, although to be fair the Richmond household is not a cord-cutter, it’s a cord-shifter. We moved from Comcast to YouTube TV nearly 2 years ago. At the end of the day, anyone’s outlook about what the overall industry’s rate of cord-cutting will be must rest on what happens to AT&T. It is such a big operator and its losses have been so outsized that it has a huge influence on what the overall industry’s performance is. Until I see a coherent video strategy from AT&T, it seems like the losses are likely continue apace.