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AT&T's streaming live TV service is bleeding subscribers as it prepares to take on more competition from Disney and Apple

Key Points
  • DirecTV Now lost 14 percent of its base during the fourth quarter. 
  • Chief Financial Officer John Stephens said on the company's earnings call Wednesday morning that the decline in subscribers was largely the result of a promotion expiration. 
  • DirecTV Now average revenue per user, or ARPU, rose $10 quarter over quarter. 
Randall Stephenson, CEO of AT&T, speaking at the Business Roundtable CEO Innovation Summit in Washington, DC. on Dec. 6th, 2018.  
Janhvi Bhojwani | CNBC

AT&T is planning a new streaming service to launch later this year. Meanwhile, its current over-the-top play, DirecTV Now, is losing subscribers.

The streaming service, which lets you stream live cable channels, lost 14 percent of its base during the fourth quarter, according to a statement filed alongside the company's earnings report Wednesday morning. DirecTV Now ended the quarter with 1.6 million subscribers.

It's the first time the streaming service has lost subscribers in at least 8 quarters.

The loss could signal a difficult road ahead for AT&T in the streaming space, which is becoming increasingly crowded with new entrances expected by companies such as Disney, Apple and NBCUniversal. As more services fight for subscribers, AT&T will need to find a model and price point that works.

Chief Financial Officer John Stephens said on the company's earnings call Wednesday morning that the decline in subscribers was largely the result of a price promotion expiration.

"Six months ago we had half a million customers on highly discounted DirecTV Now offers — offers that require the customer to pay $10 a month to pay for the service. At the end of the year, essentially none of these customers remained on those offers," Stephens said.

DirecTV Now plans regularly price between $40 and $75 per month. That puts the service in line with other live TV offerings such as Hulu + Live TV and Google-owned YouTube TV. Non-live offerings such as Hulu and Netflix start considerably lower.

"Eliminating these promotions from low-value, high-turn customers clearly elevated subscriber losses in the quarter, but it had a positive impact on streaming [average revenues per user] and lowered content costs," Stephens said.

DirecTV Now average revenue per user, or ARPU, rose $10 year over year during the period, he said.

Excluding the promotional cancellations, CEO Randall Stephenson said on the call, DirecTV subscribers grew during the quarter. AT&T pulled the promotional pricing from the market in lieu of higher engagement customers, Stephenson said.

"It's been a year, year and a half of learning what the market demand was going to be and what the market engagement, customer engagement with the product was going to be," he said. "And as we matured the product and as we came out in midyear, we just looked at the customer segment, and there was a customer segment at the low end very promotional pricing who are not engaging on the product."

In addition to DirecTV Now, AT&T owns and operates the HBO Go and HBO Now streaming services through its recently closed acquisition of Time Warner. The new streaming service, announced in October, will feature HBO as a lead brand and will host all of WarnerMedia's other properties, including movie and TV franchises.

Disclosure: NBCUniversal is the parent company of CNBC.

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