AT&T’s merger with Time Warner (Entertainment) is now complete, and despite repeated promises to antitrust regulators AT&T would not use consolidation as an excuse to raise rates, the company is reportedly doing exactly that on its DirecTV Now online streaming service.

According to a report by Cord Cutters News, most current subscribers will be formally notified this week their rates are going up $10 a month and new customers will be offered only two choices for DirecTV Now packages going forward — a slimmed down Plus package of 40 channels and HBO for $50 a month and a slightly larger Max package with 50 channels bundled with HBO and Cinemax for $70 a month. Both represent fewer channels for more money.

News about big changes for AT&T’s streaming services were first announced by AT&T CEO Randall Stephenson in late 2018, telling investors he planned to wring more profit out of DirecTV Now by raising rates and slimming down the number of channels in the remaining packages.

Current customers can keep their current packages indefinitely, but they will pay more starting in April. The $10 rate increase comes on the heels of a $5 rate increase in the summer of 2018, and AT&T has made it clear more price hikes are forthcoming as needed.

AT&T also told Cord Cutters News that DirecTV’s satellite service will soon debut on its own streaming platform, but it won’t come discounted or cheap:

• 65 channel DirecTV package: $93/month
• 85 channel DirecTV package: $110/month
• 105 channel DirecTV package: $124/month
• 125 channel DirecTV package: $135/month

AT&T hopes its simplified menu of offerings for DirecTV Now will prove attractive to subscribers, in part because both packages bundle either AT&T-owned HBO or HBO and Cinemax. But subscribers are also likely to notice the dramatically smaller package of cable channels, now missing AMC, Viacom and Discovery-owned networks. They are also likely to be confused by the forthcoming introduction of DirecTV satellite streaming packages, which will be marketed separately from DirecTV Now. AT&T plans to eventually mothball its satellite fleet and move DirecTV entirely to an internet streaming platform, but will take several years before switching off the last satellite.

AT&T’s DirecTV Now will slim its packages down substantially as early as tomorrow, while raising prices.

An informal FAQ:

Q. When will AT&T make these changes?

A. AT&T is expected to email current customers on or about March 12, 2019 to inform them of the $10 rate hike. At the same time, AT&T is likely to stop signing up new customers for its current DirecTV Now packages and begin offering DirecTV Now Plus or DirecTV Now Max instead. Current customers can expect to see their first bill with the new rates in April.

Q. Will current customers be grandfathered?

A. AT&T plans to tell current customers they can keep their current packages as long as they do not make changes to their account (or cancel), but effective April 12, 2019, rates will increase $10 a month for those subscribed to: Live a Little, Just Right, Go Big, and Gotta Have It.

Q. If I subscribe today to the older packages, can I avoid some of the price increases and channel changes?

A. Yes and no. If AT&T’s schedule holds, today is the last day you will be able to signup for DirecTV Now’s old packages, and you will need to make a payment today and skip the free 7-day trial to lock in these packages or you could face choosing only between Plus and Max after your trial ends. You will pay existing rates for March, but the $10 rate increase will impact you starting in April.

Q. What about the prices for premium channels?

A. If the rumors are true, and we stress these are only rumors at this point, current DirecTV Now customers that already subscribe to premium networks like HBO or Cinemax prior to March 12, will be able to avoid planned rate increases on premium networks that are also supposed to be announced as early as tomorrow. If you sign up today and subscribe to HBO and/or Cinemax, you will pay $5 a month for each going forward. Showtime and/or Starz are also available for $8 a month each going forward. The rumor claims that starting tomorrow, HBO will triple in price to $15 each, with Cinemax, Showtime and Starz supposedly increasing to $11 a month each. These new prices would only apply to grandfathered customers on older packages that want to add a premium network on or after March 12 to their existing package. AT&T would use this new pricing to incentivize customers to abandon their old package in favor of Plus or Max, which bundles HBO and HBO and Cinemax into the base package price. So if you are thinking about subscribing to a premium network and want to keep your old package, you should subscribe today and lock in the current lower price.

Q. What happens to pricing for add-on international channels?

A. If you subscribe to international channels (Vietnamese – $20/mo, Brazilian Portuguese – $25/mo, or Korean – $30/mo) before March 12, your rates stay the same. If you add these channels on or after March 12, you will likely pay more to do so. If you are considering these channels, you may save a lot in the long run subscribing today for at least a month to lock it current prices. If the rate increase does not happen, you can drop the add-on after a month.

Q. What are the biggest differences between the old and new packages?

A. You are getting fewer channels for more money from the new Plus and Max package tiers. DirecTV Now is stripping out popular cable networks from AMC, Discovery-Scripps, and Viacom from the new packages, but bundles HBO in the new Plus package and both HBO and Cinemax in the new Max package. An unofficial new channel lineup of both new packages can be found here.

Q. Why are they raising rates like this?

A. AT&T shareholders have been increasingly critical about the company’s 2015 acquisition of DirecTV. Executives sold Wall Street on the acquisition on the theory that acquiring the country’s largest cable TV programming distributor with 21+ million customers would deliver AT&T’s much smaller U-verse TV (with 4-5 million customers) dramatically better volume discounts on cable TV programming. More importantly, it would help AT&T become a powerhouse in video entertainment and cut through the red tape of getting that programming on AT&T’s mobile products. If you are a cable network’s biggest customer, it helps in negotiations seeking streaming and platform distribution rights.

Stephenson

After the merger, AT&T began de-emphasizing its U-verse brand and even started selling DirecTV satellite service to video-only AT&T customers. DirecTV Now was AT&T’s response to cord-cutting, and its promotional pricing and strong package of channels was customer and regulator friendly. At the same time AT&T was seeking to win regulator approval of its acquisition of Time Warner (Entertainment), it did not hurt to argue AT&T’s prior acquisitions had not hurt the marketplace, and may have even enhanced it, pointing to the DirecTV Now offering in the cord-cutting marketplace.

But Wall Street analysts have often argued AT&T is losing money on DirectTV Now, because the wholesale programming costs plus the distribution and marketing expenses likely exceed the prices AT&T charges. Some analysts are even questioning the wisdom of acquiring DirecTV in the first place, especially as the era of cord-cutting has taken a particularly harsh toll on DirecTV’s satellite subscriber numbers. Just a few weeks after the Justice Department abandoned further court action to block the merger of AT&T and Time Warner, Stephenson followed through on his commitment to shareholders by preparing to prune back DirecTV Now’s packages and dramatically increases prices at the same time.

“We’re talking $50 to $60,” Stephenson told investors last December. “We’ve learned this product, we think we know this market really, really well. We built a two-million subscriber base. But we were asking this DirecTV Now product to do too much work. So we’re thinning out the content and getting the price point right; getting it to where it’s profitable.”

Stephenson fully expects DirecTV Now will soon shed a large percentage of ‘low value’ customers that subscribed only because they locked in a low price or promotion, telling investors he prefers to deal with high-value customers that appreciate AT&T’s brand and quality, and won’t cancel over price increases. He does not want to deal with customers that chase promotions.

AT&T is also using the changes to reset its video portfolio of products, and the audiences each will target. Those most sensitive to price will be marketed ultra-skinny bundles like AT&T Watch, which can also be used to try and get customers to switch to AT&T wireless. Middle ground customers partially sensitive to price, but want a channel lineup that better reflects what they actually watch will be pushed towards DirecTV Now, which will be marketed as cheaper than cable and a good option for cord-cutters. DirecTV’s forthcoming satellite streaming service will be the new home for customers that gravitated towards DirecTV Now’s higher end bundles. Marketing will focus on customers that want an alternative to cable television, but won’t sacrifice their favorite cable channels just to get a lower bill. These customers will be willing to pay a higher price to have a less-jarring transition from the traditional huge cable TV package to DirecTV’s alternative.

Q. What does AT&T risk doing this?

A. Hundreds of thousands of DirecTV Now subscribers are likely to cancel service as a result of this rate increase, which will leave DirecTV Now at a higher price than many of its competitors. AT&T’s loss will likely deliver a sudden spike of new customer signups for YouTube TV and Hulu Live TV, which are the closest equivalents. Other services like Philo, Vue, and even Sling TV are also likely to grab new customers, albeit in smaller numbers.

AT&T’s biggest threat may turn out to be cable operators — especially Charter Spectrum, which has launched its own response to cable TV cord cutting. Its slimmed down and pick-your-own-channels packages could be more attractive than other streaming services, and bundle all local channels.

More specifics about those options are ‘below the fold’:

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Sling TV, one of the first online streaming alternatives to cable television, is slashing prices by 40% for the first three months to attract more subscribers.

Sling’s basic plans are now priced at $15 a month, with more deluxe tiers available for $25 a month for new customers.

As competitors pick up new customers, a significant number are coming from Sling TV, which is known for having one of the smallest channel lineups in the streaming industry, and DirecTV Now, which has been raising prices. To protect its flank, Sling TV is cutting prices to win back old customers and attract new ones.

Sling still has the biggest customer base among streamers with an estimated 2.42 million customers at the end of 2018. But other providers are catching up:

• Sling TV: Has 2.42 million customers, but added less than 50,000 new customers in the last quarter of 2018.
• YouTube TV: Estimated at 1 million subscribers, picking up 400,000 new customers in the fourth quarter of 2018.
• Hulu TV: Now up to 1 million customers, Hulu added 500,000 new customers in the last three months of 2018.
• DirecTV Now: Lost 267,000 subscribers in the fourth quarter, ending 2018 with 1.6 million subscribers, down from 1.86 million as of Sept. 30.

The merger of AT&T and Time Warner (Entertainment) is safe.

A federal appeals court in Washington handed the U.S. Department of Justice its worst defeat in 40 years as federal regulators fought to oppose a huge “vertical” merger among two unrelated companies.

In a one page, two-sentence ruling, a three judge panel affirmed the lower District of Columbia Circuit Court decision that approved the $80 billion merger without conditions. In the lower court, Judge Richard Leon ruled there was no evidence AT&T would use the merger to unfairly restrict competition, a decision that was scorned by Justice Department lawyers and consumer groups, both claiming the merger would allow AT&T to raise prices and restrict or impede competitors’ access to AT&T-owned networks.

In this short one-page ruling, a three judge panel of the D.C. Court of Appeals sustained a lower court’s decision to allow the merger of AT&T and Time Warner, Inc. without any deal conditions.

The Justice Department and its legal team seemed to repeatedly irritate Judge Leon in the lower court during arguments in 2018, making it an increasingly uphill battle for the anti-merger side to win.

Judge Leon

Unsealed transcripts of confidential bench conferences with the attorneys arguing the case, made public in August 2018, showed Department of Justice lawyers repeatedly losing rulings:

• Judge Leon complained that the Justice Department used younger lawyers to question top company executives, leading to this remarkable concession by DoJ Attorney Craig Conrath: “I want to tell you that we’ve listened very carefully and appreciate your comments, and over the course of this week and really the rest of the trial, you’ll be seeing more very gray hair, your honor.”
• Leon grew bored with testimony from Cox Communications that suggested Cox would be forced to pay more for access to Turner Networks. Leon told the Cox executive to leave the stand and demanded to know “why is this witness here?”
• Leon limited what Justice lawyers could question AT&T CEO Randall Stephenson about regarding AT&T’s submissions to the FCC.
• Justice Department lawyer Eric Walsh received especially harsh treatment by Judge Leon after the Justice lawyer tried to question a Turner executive about remarks made in an on-air interview with CNBC in 2016. Leon told Walsh he already ruled that question out of order and warned, “don’t pull that kind of crap again in this courtroom.”

During the trial, AT&T managed to slip in the fact one of its lawyers was making a generous contribution towards the unveiling of an official portrait of Judge Leon, while oddly suggesting the contribution was totally anonymous.

“One of our lawyers on our team was asked to make an anonymous contribution to a fund for the unveiling of your portrait,” AT&T lawyer Daniel Petrocelli told the judge. “He would like to do so and I cleared it with Mr. Conrath, but it’s totally anonymous.”

Leon responded he had no problem with that, claiming “I don’t even know who gives anything.”

AT&T also attempted to argue that the Justice Department case against the merger was prompted by public objections to the merger by President Trump, who promised to block the deal if he won the presidency. That clearly will not happen any longer, and it is unlikely the Justice Department will make any further efforts to block the deal.

AT&T received initial approval of its merger back in June and almost immediately proceeded integrating the two companies as if the Justice Department appeal did not exist. The Justice Department can still attempt to appeal today’s decision to the U.S. Supreme Court, something AT&T hopes the DoJ will not attempt.

“While we respect the important role that the U.S. Department of Justice plays in the merger review process, we trust that today’s unanimous decision from the D.C. Circuit will end this litigation,” AT&T said in a statement.

In a move that clearly signals cord-cutting is taking a toll on Spectrum cable television, Charter Communications today unveiled a new streaming TV service priced to compete with “over the top (OTT)” streaming services like YouTube TV and DirecTV Now.

“Spectrum TV Essentials” will offer a package of 60 national cable networks for $14.99 a month, when the streaming service debuts in March. The lineup avoids costly cable channels focused on sports and will include no local channels.

“Spectrum TV Essentials is a OTT offering designed to provide Spectrum internet-only customers a new low-price, high-value video option,” said Charter CEO Tom Rutledge. “As we began to assemble the rights for this new video service, we received great enthusiasm and encouragement from these key programming partners, who share our view and embrace creating an innovative video offering we believe will resonate with our internet customers.”

Remarkably, one of Charter’s first programming partners for the newest slimmed-down cable TV package is Viacom, notorious for its bouquet of high-priced cable networks. Viacom has been so insistent on regular rate increases and forced bundling of multiple Viacom-owned cable networks, some cable systems like Cable One dropped all Viacom networks from their lineups just a few years ago.

A management change at Viacom apparently included a new willingness to combat cord-cutting.

“Viacom shared its strong belief and research that suggests there is a large untapped opportunity for a low-priced, entertainment-only bundle unencumbered by the high cost of broadcast retransmission consent fees and expensive sports programming,” Rutledge noted.

The 60-channel lineup is heavy on content from Discovery Networks, Viacom, Hallmark, and AMC. News junkies will be unhappy to find CNN, MSNBC, and Fox News are not on the lineup, although lesser-watched BBC World News, Bloomberg, and NewsmaxTV are there.

The full lineup:

A&E, AMC, American Heroes Channel, Animal Planet, AXS TV, BBC America, BBC World News, BET, BET Her, BET Jams, BET Soul, Bloomberg, Cheddar, CLEO TV, CMT, CMT Music, Comedy Central, Cooking Channel, Destination America, Discovery, Discovery Family, Discovery Life, DIY, Food Network, FYI, Game Show Network, Hallmark Channel, Hallmark Drama, Hallmark Movies & Mysteries, HDNet Movies, HGTV, HISTORY, IFC, Investigation Discovery, Lifetime, Lifetime Movie Network, Logo, MotorTrend Network, MTV, MTV2, MTV Classic, MTV Live, MTVU, NewsmaxTV, Newsy, Nickelodeon, Nick Jr., Nick Music, NickToons, Outdoor Channel, OWN, Paramount Network, Science Channel, Sundance TV, Teen Nick, TLC, Travel Channel, TV Land, VH1, Viceland, The Weather Channel and WEtv.

There will be no DVR option at launch, but Charter is reportedly testing cloud DVR technology for introduction later.

“We’re thrilled to expand and deepen our relationship with Charter. They share both our commitment to the evolution of the the Pay TV ecosystem as well as our understanding of the changing needs of consumers,” said Bob Bakish, Viacom CEO. “As the video marketplace continues to segment across price points and offerings, we believe a high quality, lower priced option for internet-only subscribers is very important. We’re excited to have our global brands as part of Spectrum TV Essentials at launch.”

Access will initially be available on the desktop through SpectrumTV.com and Spectrum’s Roku app. The service will also be available on iOS and Android phones and tablets, Apple TV, Xbox One, Amazon Kindle Fire, and Samsung Smart TVs.

Epix, the newest premium movie channel on the block, is giving up on exclusive pay television distribution and has launched a new $5.99/mo direct-to-consumer subscription service, beating anticipated services from AT&T WarnerMedia and Disney.

Epix Now streaming subscribers will have access to “thousands of movies” and original series, with full download availability and a growing catalog of titles available for 4K/Ultra HD streaming.

Epix, now wholly owned by MGM, has struggled to attract subscribers from its traditional cable and satellite TV partners, as consumers ditch premium channels to reduce their bill or drop cable TV service altogether. Charter Communications recently dropped Epix from Spectrum’s bundled pay television tier, now requiring customers to buy the network a-la-carte, likely resulting in a dramatic loss of subscribers.

Epix Now is currently available with a 7-day free trial on Apple TV, as well as iOS and Android phones and tablets, and is expected to arrive soon for Roku and Amazon Fire TV owners. The service is also sold through The Roku Channel, but will shortly be transitioned to a standalone app on that platform.

Launched in October 2009, Epix began as a partnership between MGM, Lionsgate, and Viacom. It was known for airing movies more quickly after leaving theaters than its competitors. But the network has been limited by a lack of exclusivity to first-run content from larger studios. Lionsgate largely lost interest in Epix after acquiring competing premium movie service Starz in mid-2016. A year later, Viacom made it known it wanted to exit the venture to concentrate on Showtime, its primary pay television network, and use the sale proceeds to pay down Viacom’s high debt load.