DirecTV Now customers will soon be introduced to AT&T TV Now as the streaming service rebrands with new apps and prepares for the launch of WarnerMedia’s HBO Max streaming service early next year.

The streaming service, originally branded as part of the DirecTV platform, has suffered major subscriber losses (168,000 in the last three months alone) after reducing the size of its TV packages and raising prices twice in the last year. To date, more than 26% of DirecTV Now’s subscriber base has defected to other streaming services, with no end to those losses in sight. AT&T’s DirecTV satellite and U-verse TV have also turned in stunning reductions in the number of subscribers, losing at least two million customers in the last year, with 778,000 departing during the second quarter of 2019.

AT&T has stopped offering deep promotional discounts to most customers threatening to cancel over rate hikes, and subscribers are making good on their threats to leave. The company is also embroiled in two major retransmission consent disputes that have left customers in several cities facing a blackout of as many as three network affiliated local TV stations. With higher prices for fewer channels, and plenty of alternatives, customers are turning to other providers.

AT&T’s 2015 purchase of DirecTV, in retrospect, appears to have been a major business mistake, according to some Wall Street analysts. Originally intended to help AT&T manage the spiraling costs of video for its U-verse TV service by winning more generous volume discounts from programmers, the DirecTV acquisition came just before the phenomenon of cord-cutting took off, leaving all of AT&T’s video services vulnerable to customer losses. DirecTV Now initially benefited from cord-cutters attracted to its generous package of channels at a low price, but an executive decision to reduce the channel lineup while raising prices drove off what executives characterized as ‘undesirable customers only looking for deals.’

AT&T has also been experimenting with a separate streaming service that will likely eventually replace the satellite-based DirecTV. Beta testers have been providing feedback to AT&T about a new set top streaming box intended to work with this service, now to be called AT&T TV. AT&T is also reducing the number of apps required to access its myriad of video services. AT&T TV and AT&T TV Now customers will download the same app, only the channel lineups will be different. The company is targeting AT&T TV Now on cord-cutters looking for a cheaper and smaller video package, while AT&T TV will include a range of packages likely identical or very similar to DirecTV’s current satellite lineup.

If AT&T TV is successful, AT&T can cut costs incurred installing and maintaining satellite dishes and also eventually decommission DirecTV’s satellite fleet. Rural satellite TV customers without access to broadband may be in a difficult position if that happens, and the country has still not resolved the rural broadband challenge.

Even with these changes, AT&T customers are faced with a large menu of potentially confusing video options. AT&T sells traditional live cable TV services through AT&T TV, AT&T TV Now, DirecTV, and U-verse. It also offers a stripped down WatchTV package offering 35 channels for $15 a month or less. Premium customers still trying to tell the difference between HBO Go and HBO Now will soon also contend with HBO Max. Cinemax has its own similar offerings for cable TV customers and direct to consumer subscribers.

Netflix stock lost over 11% of its value late today after the company reported second quarter results that underwhelmed Wall Street, including a surprising loss of 130,000 U.S. customers that left the streaming service during the last three months.

Netflix added 2.7 million customers in the second quarter, a much smaller number than the 6 million it added during the same period last year. As of the end of June, Netflix now has 151.6 million customers worldwide. Wall Street expected between 153-156 million by that time. The $2/month U.S. rate increase during the first quarter for Netflix’s popular two-concurrent stream plan (was $10.99, now $12.99 in the U.S.) helped keep company revenue up 26%, to $4.92 billion for the quarter. But analysts expected $4.93 billion. Profits also declined to $270 million, compared with $384 million a year ago during the same quarter.

The company blamed the lackluster results on the lack of compelling content during the second quarter. In a letter to shareholders, Netflix claimed the recent price increase slowed growth, but the real problem was overheated growth during the first quarter and not a lot of blockbuster movies and shows to watch.

“We think [the second quarter’s] content slate drove less growth in paid net adds than we anticipated,” Netflix executives said.

The company also noted it is raising prices in several European countries including the United Kingdom, Spain, Ireland, France and Germany.

Netflix does not believe competition with other streaming services had a material impact on its subscriber numbers during the quarter, but analysts suggest Netflix should be concerned about forthcoming streaming competition from AT&T/WarnerMedia (HBO Max) and Walt Disney (Disney+). As more services become available, consumers are likely to take a hard look at the streaming services they are watching and ditch those they are not.

Netflix also declared it will not introduce a cheaper, ad-supported version, despite increasing speculation it would.

“We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.” Netflix told shareholders.

The Wall Street Journal reviews the many challenges to Netflix from forthcoming contenders in the streaming wars. (4:36)

Could this be the Netflix of the future?

Investors concerned about the increasing costs of developing new original content for Netflix have caused a drumbeat for the world’s largest on-demand video streaming company to start running advertising inside TV shows and movies.

A new study finds that almost one-third of Netflix customers claim they would not mind seeing advertising if it meant paying a lower price for Netflix.

The Diffusion Group, based in Los Angeles, asked 1,292 current Netflix subscribers if they would switch to a new, lower-priced Netflix tier that included commercial advertising. Nearly 32% of respondents expressed confidence they would make that switch, with 49% opposed and 20% undecided.

A recent streaming conference in Europe seems to have stoked interest in the concept of an ad-supported Netflix, although the company has repeatedly claimed it has no plans for an advertiser-supported tier, dismissing the idea as a concept dreamed up by their competitors, notably Comcast/NBC and Hulu.

TDG Research president Michael Greeson believes advertising on Netflix is inevitable however, driven by a backlash from Wall Street over how much Netflix is spending on content as it continues to lose access to some of its most popular licensed content, being pulled off Netflix by its competitors Disney and AT&T/WarnerMedia.

“Given the rising costs of programming and growing debt, so goes the argument, it is just a matter of time before the company makes a move,” TDG said in its report.

Netflix’s early days of streaming depended on a deep library of popular movies and TV shows that were readily licensed to the company by major Hollywood studios. But in the last five years, those studios have demanded dramatically higher licensing fees, and in the last year they have ended some contract renewals altogether to reserve content for the launch of their own affiliated streaming services, including Disney+ and HBO Max.

“Netflix’s response to its thinning third-party library is to spend more on originals, which it’s gambling will keep subscribers from jumping ship,” Greeson said. “But with half or more of its most-viewed shows being owned by three studios, each of which is launching their own direct-to-consumer services, how long can you convince 55+ million US consumers that your service is worth paying a premium price, especially compared with Hulu (offers an ad-based option), Amazon Prime Video (free with Prime), and Disney+ (coming in a $6.99/month)?”

Greeson

Netflix has faced growing pressure from investors to reduce the level of debt it has accumulated financing those original productions, including pushes for rate increases and advertising. Netflix raised prices, but has publicly opposed advertising. Some investors now want another rate increase, which Greeson warns would be perilous for Netflix’s subscriber count, because their research found the last price increase “strained the limit of the service’s value.” That research was done before subscribers start to discover their favorite shows will increasingly be pulled off the platform. Greeson believes another rate increase will cause at least some customers to flee, stalling Netflix’s growth.

The happy medium in Greeson’s view is the introduction of an ad-supported tier for price-sensitive subscribers, and he predicts Netflix will introduce it in the next 18 months.

“Ads will become an important part of a comprehensive tiering strategy that helps bullet-proof Netflix for years to come,” Greeson said.

AT&T/WarnerMedia’s new streaming service due to debut in Spring 2020 will be called HBO Max and bundle original and classic content from AT&T-owned networks and studios, including Warner Bros., New Line, DC Entertainment, CNN, TNT, TBS, truTV, CW, Turner Classic Movies, Cartoon Network, Adult Swim, Crunchyroll, Rooster Teeth, and Looney Tunes.

AT&T still has not announced pricing for the service, but most expect it will end up costing around $16 a month, more than any other streaming service.

“HBO Max will bring together the diverse riches of WarnerMedia to create programming and user experiences not seen before in a streaming platform,” Bob Greenblatt, chairman of WarnerMedia Entertainment and direct-to-consumer, said in a statement.

To attract potential subscribers, AT&T has been pulling back content it owns or controls from other streaming services. In addition to The Office, AT&T announced it will also yank Friends reruns off of Netflix in early 2020, despite collecting $80 million from the streaming giant this year to carry the NBC series that aired its last episode in 2004.

To market HBO Max, WarnerMedia will tie it to the marquee HBO brand and its HBO Max and Go streaming services. HBO Max customers will receive access to the full HBO online catalog of on-demand content, along with more than a dozen new made-for-streaming TV shows and movies. Much of the new content will target a younger audience, including a large roster of CW shows, original movies and shows. But older audiences will also find a large library of classic content from the enormous Turner Classic Movies and Warner Bros. studio libraries.

A preview for HBO Max, WarnerMedia’s new streaming service, debuting in Spring 2020. (0:43)