By Drew FitzGerald and Kimberly Chin
AT&T Inc.'s pay-television subscriber base continued to erode during the first quarter, adding pressure on the telecom and media giant to develop a new streaming service aimed at cord-cutters.
The Dallas company reported a net loss of 544,000 so-called premium TV customers, a category that includes DirecTV satellite subscriptions and U-verse fiber-optic packages, during the first three months of the year. The online cablelike service DirecTV Now shed 83,000 customers.
Shares in AT&T fell 4.1% to $30.79 Wednesday. The stock is still up about 8% this year.
The reported pay-TV losses would have been even deeper were it not for a change in the way AT&T records disconnections. The company said it now counts severed accounts based on billing cycles, a change that boosted total pay-TV subscriptions by 117,000. All told, the company ended the quarter with 23.9 million pay-TV connections.
"We'll continue to see declines in traditional TV subs, particularly those areas where we can't bundle with broadband," Chief Executive Randall Stephenson said in a conference call with analysts. "You'll see subscriber losses should lessen as we get into 2020."
Despite those customer defections, the division that holds DirecTV improved its profitability. The unit, which also includes home and business landline service, lifted operating income 4.8% to $1.48 billion by gaining 45,000 home broadband customers and by keeping a tighter lid on expenses. The reversal put the company on track to meet its goal of stabilizing earnings in the division, which suffered deep losses in 2018.
Wireless operating income also improved. AT&T said it added 80,000 more "postpaid" phone subscriptions, a valuable category of customers who are billed for monthly service after use -- and who tend to stick around longer.
Rival Verizon Communications Inc. said Tuesday it lost 44,000 such connections. The customer gains boosted earnings despite declining revenue from smartphone upgrades, which hit a record low during the quarter. Cellphone users have been holding on to their devices for longer, a trend that has forced carriers to adapt.
Overall net income attributable to AT&T was $4.01 billion, or 56 cents a share, down from $4.66 billion, or 75 cents a share, a year earlier, because of merger- and integration-related costs.
Consolidated revenue increased 18% to $44.8 billion, a boost that came mostly from the addition of Time Warner.
AT&T closed its purchase of the owner of Warner Bros., HBO and a suite of cable channels including CNN last year after a protracted antitrust battle with the U.S. Justice Department. The business, renamed WarnerMedia, added $1.2 billion in operating income to the bottom line last quarter.
Results in the company's media division benefited from cost cutting and higher revenue from Warner Bros.-produced TV series and movies, including continuing box-office sales from "Aquaman." Earnings from HBO also increased despite a continuing dispute with Dish Network Corp. over carriage terms that hurt subscription revenue.
WarnerMedia is building an on-demand, streaming-video service expected to launch in so-called beta mode near the end of this year. The still unnamed service, which wouldn't carry the live sports and news available on DirecTV Now, is slated to join an increasingly crowded market for internet-based entertainment that includes new offerings from Walt Disney Co. and Apple Inc.
"The Disney announcement gave us nothing but more optimism in terms of what we'll be able to bring to market," Mr. Stephenson said Wednesday. WarnerMedia plans to reveal more details about its plans in September or October.
Write to Drew FitzGerald at firstname.lastname@example.org and Kimberly Chin at email@example.com