The Price Point | AT&T/DirecTV Divorce Offers Important Lessons

With AT&T desperate to sell DirecTV, reportedly for 40% of what it paid just a few years ago, one wonders how Ma Bell’s namesake could have messed up so badly.

Yes, enormous subscriber losses are the driver, almost 850,000 last quarter, but just blaming new competitors and a sudden drop in the economy lets AT&T off the hook too easily. Disruption this massive, this quickly, causes one to wonder if the company was caught off guard.

Has AT&T been simply a victim of events, or could DirecTV’s Potemkin have at least been mitigated? That question would make an interesting case study.

If there was ever a plan to integrate DirecTV into overall strategy, we have not seen it. Instead, AT&T treated DirecTV as one choice among a buffet of video services, each competing directly with the others. At one time U-Verse was AT&T’s most successful video service, its quality considered second only to FiOS in the world of wired competition. When DirecTV came online, U-Verse was moved to stepchild status and allowed to slowly erode away.

But wait, you might say. Wasn’t U-Verse also a victim of AT&T’s own OTT services? If so, just how well are those services doing? Since launch, AT&T has had three different names for its “cable light” products. The latest, AT&T TV, is not exactly a household name.

The DirecTV brand has also been piddled away. Launches of its heavily promoted OTT alternatives have failed twice. The last reported name was DirecTV GO.

All of this is a textbook failure of strategy, which is always a failure of leadership. AT&T began with two solid businesses targeted at two different customers. U-Verse was a metro product that did not make sense in areas without high-speed fiber. DirectTV was a rural product, not suited to high-density communities.

AT&T’s first goal should have been to make both U-Verse and DirecTV best in class. Instead of then firing in every direction when the OTT revolution arrived, the company would have been in a position to target its strong base with a single well-thought-out product that made sense to customers. Some sort of price advantage would have been critical, as well as seamless transition to the new platform.

The problem with the plan I’ve just laid out is that success depends on already having loyal customers, which I believe is AT&T’s biggest failure of all. Any business student can tell you that rule No. 1 is protect your current client. I subscribe to DirecTV, AT&T high-speed internet and AT&T cell phones. I like their products about as well as my cable services, but dread calling customer service. And don’t get me started on figuring out pricing.

Let me put it another way: Will any current DirecTV customer even care if AT&T is no longer the owner? Once lost, customer loyalty is incredibly difficult to restore — if at all.

Someone is going to buy DirecTV, and they will get it at a reasonable price. With it will come a still viable base of users. For a forward-looking company, it can be an opportunity. Not the same opportunity AT&T thought it had six years ago, but thanks to its miss, an opportunity none the less.

Hank Price is a media consultant and leadership coach. He is the author of Leading Local Television, a guide to leadership for television general managers, as well as those who aspire to top leadership. Price spent 30 years managing TV stations for Hearst, CBS and Gannett, including WBBM Chicago and KARE Minneapolis, as well as three other stations. Earlier, he was a consultant for Frank N. Magid Associates. Price also served as senior director of Northwestern University’s Media Management Center and is currently director of leadership development for the School of Journalism and New Media at Ole Miss. He is the author of two other books.