The nascent Internet TV market will become more crowded by next year. AT&T will launch three streaming Internet TV services in the next quarter. It has already secured a number of content partners for the services, which will be delivered to subscribers across AT&T’s fixed and wireless networks to smartphones, tablets and laptops and Internet-connected TVs.
AT&T will launch three different OTT services, each geared to target the demographics that are not currently engaged with traditional pay TV services. AT&T estimates there are 20-30 million consumers in the US without pay TV subscriptions, and data shows that number is growing slowly quarter by quarter. AT&T lost 391,000 pay TV subs last quarter, but its satellite business DirecTV netted 342,000 subs.
The company is hoping theses OTT services will help stymie some of that hemorrhaging. “In 2017, this will be a big driver of video for us,” AT&T CEO Randall Stephenson said.
Stephenson hopes the OTT services, which will be delivered exclusive online, across devices and platforms, will address some of the content holes consumers face when wanting to watch their video anytime and anywhere.
“The consumer has gotten to a place where they are not terribly happy about paying multiple times for the same content,” Stephenson said, speaking at the Goldman Sachs conference this week. “They don’t want to buy the DirecTV subscription and then have to go pay extra if they want to see the same [content] on a mobile device. They don’t want to buy an over-the-top subscription and have to pay for it again if they want to stream it to a TV. And if they forget to DVR ‘Silicon Valley,’ the idea that I now have to go to Apple or Hulu or wherever, and pay for it again – We have to solve that problem.”
Big Bundles with Thinner Margins
Stephenson has said the service has 90% of the content contracts in place. “We have a couple of key ones that we are still working on, but we are largely done,” Stephenson said. Pay TV content owners that have signed up to be part of the OTT services include: Time Warner’s HBO and Cinemax, and Turner, Discovery Communications, Disney and ESPN, NBCUniversal and Viacom. That leaves CBS, 21st Century Fox, and pay TV networks A&E Networks and Scripps Networks Interactive as missing pieces of the puzzle – or at least, not yet announced puzzle pieces.
UPDATE: Scripps and A&E announced they will be part of the DirecTV Now service.
All three of the services will carry the DirecTV brand: DirecTV Now will offer something like a basic pay TV package; Stephenson said it’ll offer 100 channels of streaming pay TV. That’s many more channels than, say Dish Network’s Sling TV; DirecTV Mobile will be a mobile-centric service and will probably draw heavily from AT&T’s growing pool Web video network assets, acquired through its joint venture multi-channel networks Otter Media and Ellation; and DirecTV Preview will offer a mix of Web content and traditional TV fare, targeting Millennials that are resistant to signing up to a full blown traditional pay TV service.
AT&T hasn’t yet announced any pricing, but estimates for the streaming pay TV package (DirecTV Now) range from $40 per month to $60. That puts DirecTV Now in line with Sony’s Internet TV service PlayStation Vue. Stephenson said this week the OTT services will be “very, very aggressive” in pricing. We think Stephenson meant the pricing will be aggressive by pay TV standards, not OTT standards. It would be hard for AT&T to beat Sling TV’s $20 price tag, given all the content it has promised.
One of the perks of launching OTT services is the ultra-low cost of subscriber acquisition, which gives service providers a little bit more room in the profit margins. Stephenson said the OTT services will have thinner but not thin margins. “This is a very unique cost structure,” Stephenson said, and he acknowledged that the OTT business is “completely different” from the pay TV business. There are no truck rolls or equipment to install, and there’s no extra hardware beyond what the customer already has. “This is a very, very low-cost customer acquisition product,” he said.
There are a few ways to up revenue for the services, too. AT&T could charge subscribers more for enabling additional simultaneous streams, as Netflix and Dish Network have done; AT&T can also pair its OTT services with its wireless services.
While A&T hasn’t said what content will be available in which package, we have some clues: Disney’s head Bob Iger recently stated Disney, ABC and ESPN channels will be available in all subscription packages offered in AT&T’s OTT services. Time Warner’s HBO and Cinemax could be offered as a la carte premium add-ons available to OTT subscribers; and NBCUniversal channels will be available on at least two of the three services.
Targeting the Growing Pool of Cord Cutters and Cord Nevers
AT&T has joined the chorus of other traditional service providers that insist such Internet TV services are only attractive to consumers who don’t already have pay TV subscriptions. Still, Stephenson said there is risk of cannibalizing some of its traditional pay TV business. “I do think, yeah, that there is risk of it cannibalizing the existing product,” he said, but added that such cannibalization would indicate the OTT services are “something that the market really wants.” He also acknowledged that the pay TV business is in the midst of an incredibly important transition. “We have demonstrated a real competence in managing these type of market and technology transitions,” Stephenson said.
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