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AT&T is hiking the price of DirecTV Now after saying Time Warner deal would likely lower consumer costs

AT&T is hiking the price of DirecTV Now after saying Time Warner deal would likely lower consumer costs
AT&T's DirecTV Now streaming service is shown on a phone. (Dreamstime / TNS)

AT&T Inc. told a federal judge this year that its landmark acquisition of Time Warner Inc. probably would result in lower prices for its DirecTV customers. But the telecom giant is saying that it will raise the price of DirecTV's online streaming service, DirecTV Now, by $5 a month for new and existing customers.

The decision affects all service tiers of the product, according to Cord Cutters News, which first reported the change. That brings the base tier to $40 per month and the topmost tier to $75. AT&T said its decision was driven by industry trends.

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"To continue delivering the best possible streaming experience for both new and existing customers, we're bringing the cost of this service in line with the market — which starts at a $40 price point," AT&T said in a statement.

AT&T's move mirrors price increases by other online streaming services. Last week, Dish Network's Sling TV announced that it was raising the price of its base package, Sling Orange, by $5 per month, to $25. In March, another competitor, YouTube TV, raised its price by $5 per month, to $40. AT&T Chief Executive John Donovan said in May that DirecTV Now was priced below the market but would not stay that way.

The DirecTV Now price hike takes effect July 26 for new customers and possibly later for existing customers based on their billing dates. If applied across DirecTV Now's entire user base of nearly 1.5 million customers, the price increase could mean more than $87.5 million a year in new revenue for AT&T.

The announcement comes days after an industry analyst said AT&T had quietly increased an "administrative fee" on its wireless customer bills in a recent move that could generate almost $1 billion a year in additional income. The analyst speculated that some of the fee could be intended to cover the costs of the Time Warner merger.

How AT&T's merger with Time Warner could ultimately affect consumer prices became a key battleground this year in the Justice Department's antitrust suit to block the deal. Government lawyers alleged that the merger was anticompetitive because it would end up costing consumers hundreds of millions of dollars a year in new costs for TV service.

But lawyers for AT&T and Time Warner called those allegations "preposterous" and said they were based on faulty economics. The companies argued in closing arguments at court that the deal would allow DirecTV to lower prices to consumers.

"Doesn't that create more competition in the marketplace?" Judge Richard Leon interrupted.

Yes, said AT&T and Time Warner attorney Daniel Petrocelli, because other TV providers would need to make similar moves to keep up. AT&T went on to win the suit in a complete rout, with Leon ruling against the Justice Department.

AT&T's announcement for DirecTV Now does not appear to extend to customers of DirecTV's legacy product, its satellite TV service. Technically speaking, that means AT&T still has not raised prices for traditional pay-TV customers, the market with which the Justice Department's case was most concerned. Still, AT&T has made no secret of its desire to phase out its declining satellite business by shifting even those customers to online streaming video.

Asked whether the price hike to DirecTV Now may contribute to a Justice Department appeal, an agency spokesman didn't immediately respond to a request for comment.

1:30 p.m.: This article was updated with examples of other streaming services raising prices.

This article was originally published at 7:25 a.m.

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