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DirecTV breaks free from AT&T

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CULVER CITY, CALIF. -- FRIDAY, JANUARY 31, 2020: A view of DirecTV satellite dishes at AT&T Los Angeles Broadcast Center in Culver City, Calif., on Jan. 31, 2020. The satellite TV business is owned by AT&T.(Allen J. Schaben / Los Angeles Times)
DirecTV satellite dishes at the AT&T Los Angeles Broadcast Center in Culver City. AT&T has completed its spinoff of the satellite TV business. (Allen J. Schaben / Los Angeles Times)

Six years after AT&T swallowed DirecTV with ambitious plans to modernize the satellite TV business, the telephone company has retreated, returning DirecTV to its roots as a stand-alone company.

On Monday, AT&T completed its spinoff of DirecTV, taking $7.1 billion in cash and 70% interest in the new DirecTV. Private equity giant TPG, which contributed $1.8 billion, owns 30% of the new privately held company.

The new DirecTV is made up of AT&T's three TV distribution businesses: the namesake satellite TV service, the legacy U-verse and the streaming offer AT&T TV. The AT&T brand will be stripped away as part of DirecTV's efforts to simplify its message and repair its reputation among consumers.

"It's a new day and a new DirecTV," Bill Morrow, DirecTV chief executive, said in an interview.

AT&T's ownership of DirecTV was disastrous. The Dallas company paid $49 billion to acquire El Segundo-based DirecTV (and absorbed another $18 billion in debt) with the goal of selling its customers a bundle of TV and phone services. When that deal closed, in July 2015, AT&T became the nation's largest pay-TV provider with 26 million customers.

Now the three former AT&T television platforms — DirecTV, U-Verse and the streaming service AT&T TV — have about 15.4 million subscribers, according to the company. In six years, AT&T lost nearly 40% of its TV subscriber base, resulting in one of the highest levels of so-called "churn" in the industry.

"Some of our churn was self-inflicted," Morrow said.

Morrow, a former CEO of Pacific Gas & Electric in San Francisco, has spent more than a decade in the industry. He worked more than five years spearheading New Zealand's efforts to build a nationwide broadband network.

AT&T hired him in late 2019 when the company was under pressure from an activist investor that demanded that AT&T pay down its debt and get rid of non-core assets.

DirecTV will have a five-member board: two representatives of AT&T and two representatives of TPG, as well as Morrow, who plans to bring a different focus to DirecTV.

Morrow believes the satellite TV business, while declining, will be around longer than some analysts have projected. Customer surveys, he said, have found that many consumers still want bundles of their favorite TV channels in addition to streaming services, like Netflix.

"A lot of people think there is a shrinking marketplace [for TV] out there, but the fact is that viewing in the home is increasing — not decreasing," he said.

Rather than offering a jumble of brands, all products will be marketed as DirecTV.

"We are a customer advocate, and we don't have any other product to sell to them — other than just aggregation, distribution and curation ... of content that consumers want brought to their doorstep," he said.

Most of the unit's workers have transitioned to the new DirecTV. Morrow said he doesn't envision restructuring the workforce, which already has endured multiple rounds of restructuring — and multiple management teams — in recent years. DirecTV said it will honor the terms of existing collective bargaining agreements covering union-represented employees. The new company will be based in El Segundo and in Denver.

But there will be other changes eventually, including to one of DirecTV's signature offerings, the NFL Sunday Ticket package.

DirecTV maintains the rights to the Sunday Ticket package of out-of-market football games through the 2022 season, but when the NFL deal expires the company will probably discontinue the package, Morrow said.

DirecTV has been losing tens of millions of dollars a year on its partnership with the NFL, and it can no longer stomach the losses. In addition, the NFL is interested in experimenting with streaming partners, and granted a partnership with Amazon.

AT&T has agreed to cover the NFL losses, according to a regulatory filing.

AT&T was under pressure to get rid of assets to generate cash to pay down its debt from its buying spree, which included the $85-billion purchase of WarnerMedia, parent of HBO, CNN, Turner and the Warner Bros. studio, three years ago. This spring, AT&T announced that it would sell WarnerMedia to smaller rival Discovery.

The company's DirecTV was problem plagued from the start.

In 2015, AT&T offered rich severance packages to much of DirecTV's senior leadership, who then stampeded out the door.

DirecTV had long been known for sterling customer service, but AT&T dismantled that, moving customer-relations functions into its "shared services" unit that was primarily geared toward dealing with phone service issues. That meant AT&T customer service representatives suddenly were trying to troubleshoot satellite TV problems over the phone.

The customer defections began accelerating within a couple years of the takeover. AT&T was focused on building a streaming service that it could pair with its broadband offer. It launched various versions of streaming service — DirecTV Now, AT&T Now and AT&T TV, all of which sputtered in the market.

Morrow said there is untapped potential in the AT&T TV product, which will be known as the DirecTV Stream.

This story originally appeared in Los Angeles Times.