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.

The reason why many cable companies are no longer willing to cut deals on cable television with customers looking for a better one is that the profit margin enjoyed by cable operators on television service is shrinking fast.

Researcher Cowen found that smaller cable operators are particularly vulnerable to the high costs of cable programming because they do not get the volume discounts larger operators like Comcast, Charter, DirecTV, and Dish are getting.

Researcher Cowen found that programming costs are increasing fast at smaller cable companies. (Image: Cowen/Multichannel News)

Altice USA, which divides about 3.3 million cable TV subscribers between Optimum/Cablevision and Suddenlink, says it paid $682.4 million for cable TV programming during the first quarter of 2019. That amounts to 67% of the company’s total video revenue. If Altice offered complaining customers a 40-50% break on cable television, it would lose money. Cable operators already temporarily give up a significant chunk of video revenue from new customer promotions, which discount offerings for the first year or two of service. Many operators consider any video promotion to be a loss leader these days, because programming costs are exploding, particularly for some local, over-the-air network affiliated stations that are now commanding as much as $3-5 a month per subscriber for each station.

Comcast, the nation’s largest cable operator, unsurprisingly also gets the best programming prices. With volume discounts, Comcast reports its programming costs consume about 60% of revenue. Charter Spectrum and Dish report about 65% of their video revenue is eaten by programming costs. Both are seeing dramatic declines in video subscribers as cord-cutting continues. The more customers a company loses, the less of a discount they will command going forward.

According to Cowen, just three years ago Comcast gave up 53% of video revenue to cover programming costs. With programming rate inflation increasing, many smaller cable companies are considering exiting the cable TV business altogether to focus on more profitable broadband service instead.

After years of increasing costs for video programming, the disadvantages of not being large enough to qualify for lucrative volume discounts, and a declining customer base, a Montana cooperative says it is calling it quits on cable television service later this year to focus on its broadband business.

3 Rivers Communications, a rural telecommunications cooperative based in Fairfield, Mont., this week announced it was discontinuing television service on Oct. 31, 2019, inviting its members to choose a streaming TV provider (DirecTV Now, YouTube TV, etc.) instead.

The co-op serves 15,000 customers across two significant service areas in Montana. Only 1,800 still subscribe to cable television service — a number that has dropped steadily since the introduction of streaming TV alternatives. Most cable networks and local stations charge a sliding scale fee to carry their programming, with substantial volume discounts offered exclusively to large providers like Comcast, Charter, AT&T, DirecTV and Dish Networks. Small, independent companies are at a disadvantage because they must charge substantially more to cover their higher wholesale costs. Many have attempted to mitigate these high fees by pooling resources and buying programming through a national cooperative, but even that arrangement cannot keep costs low enough to prevent subscribers from canceling service after each rate increase.

Local TV station rate inflation, along with sports programming price hikes, have made offering cable television untenable for a growing number of small cable operators. As an example, 3 Rivers customers in Big Sky pay $32.99 for a basic cable TV package of 23 channels, including C-SPAN, Local Access, three religious networks, three home shopping channels, and around a half-dozen digital multicast TV networks. A comprehensive digital cable TV package costs $104.99 a month, just for television.

The 3 Rivers Communications television lineup for Big Sky, Mont.

In the last ten years, 3 Rivers has been focused on expanding its fiber to the home network, now reaching 65% of its customers. But the costs to provide service in rural Montana remain high, and internet packages remain costly. A 10 Mbps unlimited internet account costs $74.95/mo, 20 Mbps costs $94.95/mo, and 30 Mbps costs $114.95 (add around $10/mo for voice service). Offering television service originally boosted the average revenue received from each subscriber, but now that costs have skyrocketed, 3 Rivers now feels it should focus its investments on better broadband service.

“With all the new streaming options available, [including] Netflix and Hulu and Amazon Prime, in addition to traditional satellite providers like Dish and DirecTV, we just can’t really compete anymore,” 3 Rivers marketing director Don Serido told KRTV News. “We’re getting out of the TV business and we’re really going to focus on providing the best broadband we can to all of our cooperative members. That’s really what people want and need.”

Serido also said the company’s lack of support for pay-per-view and on demand programming also hurt its TV business. As a convenience to members, 3 Rivers is waiving all early termination fees and will continue to honor its promotional agreements until service is ended on Oct. 31.

The biggest impact will likely be felt by Montana TV stations that will lose retransmission consent revenue from 3 Rivers. Only a handful of streaming providers offer TV stations from the Great Falls market, forcing many cord-cutters to depend on on-demand viewing from services like Hulu and over-the-air antennas to pick up local stations.

As a member-owned cooperative, 3 Rivers returns all of its profits to members through capital credits. At the end of each fiscal year, the cooperative allocates a percentage of the margins to each patron on a pro-rata basis according to the total amount paid or produced for services. These allocations to patrons are known as capital credits. Upon approval of the Board of Trustees, these allocations are refunded to cooperative patrons. As a result, 3 Rivers has no incentive to overcharge its customers. Instead, it often invests its funds in improving service for its customers. When the cooperative was formed in 1953, it was the only provider of telephone service in north-central Montana. It has offered internet service for the last 20 years, with television only becoming a part of its menu of offerings a decade ago.

3 Rivers Communications will get out of the cable television business this fall, reports KRTV News in Great Falls, Mont. (1:05)

Charter Spectrum serves a significant part of the state of Maine.

The Maine state government is reviewing a measure that would require all cable operators in the state to offer customers the chance to buy individual cable channels instead of being forced into a large and costly package of dozens, if not hundreds of unwanted TV channels.

“The senior citizens in my area want to watch the Boston Red Sox,” says Rep. Jeffrey Evangelos, an independent from Friendship. “The package that Spectrum is offering in Maine that includes the Red Sox costs about a hundred bucks. These people are making $800 bucks a month on Social Security. They’re bemoaning to me at the doors, you know, ‘I can’t afford television anymore Jeff.’ And they grew up in an era when television was free.”

Maine Public Radio reports Evangelos’ solution is an insertion of a single sentence into the state franchising law:

A cable system operator shall offer subscribers the option of purchasing access to cable channels, or programs on cable channels, individually.

The proposed change won support from a state legislative committee, but scorn from cable industry lobbyists that claim the proposed measure violates federal law.

Chris Hodgdon, a Comcast lobbyist, pointed to the specific statute forbidding states from telling cable operators how to conduct business: “No state shall regulate the products, rates, services of a cable provider.”

Charter Spectrum’s regional lobbyist Melinda Kinney warned any such law would likely face immediate court challenges. Kinney complained the measure was unfair because it targets cable operators while excluding satellite and streaming providers. But consumer advocates argue that the law could actually help the cable industry as cord-cutting becomes a national phenomenon. Subscribers agree.

“I’d sign back up for cable TV in a minute if I could pick my own channels and pay a reasonable price,” said Jack Winters, 71, a former Comcast customer near Brunswick. “Comcast makes you take all or nothing so I took nothing. I miss not getting Fox News Channel, Turner Classic Movies, and Hallmark, but my bank account doesn’t.”

Sen. Angus King, the independent senator from Maine, has done his part to investigate whether such a state law would violate federal deregulation measures. He took the proposal to the FCC.

Patrick Webre, chief of the FCC’s Consumer and Governmental Affairs Bureau responded that no state has passed such a law before, so he couldn’t say much:

“In your letter you asked whether a state mandate that a cable operator provide a-la-carte services would be pre-empted by federal law. This poses a question of first impression, and we could not locate any specific Commission rules that addresses your exact issue. Thus we are not in a position to express an opinion on the question you raise.”

Under the Trump Administration, however, the Republican majority controlling the FCC would likely oppose the measure because it would introduce new regulations on the industry, something that has historically been anathema to Chairman Ajit Pai and Commissioner Michael O’Rielly. Republican Commissioner Brendan Carr, formerly a lawyer for Wiley Rein, which represents the interests of several large telecom companies, would likely also oppose the measure.

The bill now moves to the full Legislature on a tri-partisan vote of 8-2 and will be debated first in the House.

A proposed new law would require cable operators in Maine to sell individual cable channels to customers. (4:08)

Spectrum TV subscribers are the only ones in the country that can watch Charter Communications’ first original Spectrum-exclusive production, “L.A.’s Finest,” available only on demand, on a channel somewhere in the thousands, if you or anyone else can find it.

A Variety review suggests a search to find the hour-long drama isn’t worth the effort:

“L.A.’s Finest” isn’t just a cop show. It’s a gambit — a bet placed by cable provider Spectrum that by providing not just access to HBO and HGTV but original programming of its own, it’ll stand out. The series, a Jerry Bruckheimer production set within the universe of his “Bad Boys” film franchise, is the beginning of a stream of on-demand Spectrum Originals programming that will also include, eventually, a comeback for “Mad About You.”

The idea of providing some added value to subscribers through original programming is a reasonable enough one (why not get in a game with so many players already?). But this particular show seems ill-suited to its format: Meant to live on an on-demand platform, this drama seems oddly unlikely to have been specifically demanded by anyone at all. A tonally disastrous half-comedy, half-melodrama about policing that draws in cartel politics and family angst, “L.A.’s Finest” seems designed to be vaguely, generically acceptable to have on in the background — which makes it a strange choice as the launching point for a set of programs that would seem to require viewers affirmatively choosing to tune in.

As cord-cutting grows epidemic, cable companies are looking for ways to keep you hooked to your cable TV package, and after watching Netflix and Hulu produce original series, why can’t cable companies do it too? Charter’s first original production stars Gabrielle Union and Jessica Alba as two female cops that sometimes take matters into their own hands in the cause of justice, while balancing family and relationships. Sometimes a drama, sometimes a comedy, the show feels like a network series reject from 20 years ago. It’s not the traditional police procedural that de-emphasizes the home life and character development of its stars, a-la Law & Order. Instead, it occasionally reminds viewers of the interwoven drama of NYPD Blue, a series now long gone.

Spectrum’s effort rubs against the grain in another way: although offering the first three episodes for immediate viewing, future episodes will be rationed out a little at a time, defeating today’s streaming reality of binge watching. The next two episodes are due May 20. Spreading out the nine episodes of season one could be a dangerous idea for a mediocre show that will require viewers to come back again and again to catch up. Many won’t. Others may never find the show in the first place, lost in cable TV Channel Siberia. Your best bet is to find the On Demand channel on your Spectrum lineup and it probably will be there. If you fall in love with the show, bookmark its streaming home page. You will get regular updates about future episodes.

If you do not have a Spectrum TV subscription, tough luck — no L.A.’s Finest for you. But considering the caliber of Spectrum’s first foray into original productions, that probably is not much of a loss.

A trailer for Spectrum TV’s original production, L.A.’s Finest. (1:48)