Streaming service from AT&T debuts this week

By Brian Fung

The Washington Post

AT&T on Monday unveiled its long-awaited answer to the increasingly competitive marketplace for online streaming video. Known as DirecTV Now, AT&T’s new service promises to be a comprehensive solution for consumers looking to buy a cable-like experience without all the muss and fuss of a traditional cable package.

DirecTV Now, which goes live Wednesday, will let viewers watch shows and movies over an Internet connection, much like Netflix or Hulu – no boxes or other equipment required. Unlike those services, AT&T’s offering will come with more than 100 TV channels in a “fat bundle” of on-demand and live programming.

Although AT&T chief executive Randall Stephenson initially promised that such access would cost $35, the company said Monday that the price will be a promotional offer. After some amount of time – AT&T declined to say how long – the 100-channel package will rise in price to $60 a month, in line with what many analysts said will be necessary for AT&T to make a profit on the new app. Those who purchase the 100-channel package at the promotional price of $35 will get to keep that rate for as long as they are subscribed to the service – aside from rate hikes stemming from content acquisition costs, AT&T said.

“The laws of financial gravity are inescapable,” said Roger Entner, a wireless analyst at Recon Analytics. Previous estimates by the firm MoffettNathanson suggested that at a flat rate of $35 a month for 100 channels, DirecTV Now would be earning roughly $1 per subscriber each month after factoring in the costs of acquiring television content from the likes of HBO, ESPN and Discovery, among other producers.

DirecTV Now will offer consumers a variety of service tiers. It will start at $35 per month with roughly 60 channels, AT&T said, followed by a $50 bundle with 80 channels, the $60 bundle with 100 channels and a top-tier package of 120 channels for $70 a month. Some markets will also be able to access their local TV channels from DirecTV Now, the company said, and more will be added in the future.

Customers who select a tier without HBO or Cinemax can add either channel for an additional $5 per month. (HBO typically costs $15 per month.)

AT&T’s pricing strategy seems more “reasonable” from a business perspective than what Stephenson had hinted at, said Craig Moffett, an analyst at MoffettNathanson. But, he warned, it could also forestall adoption.

“It will take some time to see how all this plays out,” he said.

Compared with what other companies offer, DirecTV Now could be a compelling deal for some consumers. Take Sony’s PlayStation Vue, for example. At its highest price point, PlayStation Vue provides roughly the same number of channels as DirecTV Now and costs $65 a month. Dish’s Sling TV, another streaming service that provides access to live programming, such as sports and breaking news, tops out at $40 a month for roughly 50 channels. A comparable plan from DirecTV Now would cost $50 per month.

The average cable household pays $103 a month for TV service, according to Leichtman Research.

AT&T’s challenge, analysts say, is bringing in new customers who have never owned a cable subscription or who cut the cord long ago, while at the same time keeping its pay-TV subscribers from jumping too quickly to the new streaming app, which could hurt AT&T’s earnings. AT&T said that DirecTV Now is aimed at the roughly 20 million American households who do not have a pay-TV subscription.

“This product is tuned to address portions of that base, to find the folks that maybe couldn’t pass credit checks, to find the cord shavers and the cord-nevers,” said John Stankey, chief executive of AT&T Entertainment Group, “to establish a relationship with those customers on premium content and then grow that relationship … over time.”

While DirecTV Now comes with an array of premium content, notably absent from the service are Showtime and CBS, meaning subscribers may not get access to hit shows such as “Homeland” or “The Big Bang Theory.” AT&T executives said Monday they are engaged in active discussions with the programmers to bring their content to DirecTV Now.

If CBS does not allow its content on DirecTV Now, it could ultimately keep AT&T’s new product from gaining traction, according to some analysts.

“There are certain channels you need. Not having them may have some impact if it doesn’t stack up to cable,” John Hodulik, an analyst at UBS, told Bloomberg last week when discussing the possible channels that would appear with DirecTV Now.

Still, AT&T could make money from DirecTV Now in other ways, such as using viewing data to sell targeted advertising or to encourage consumers to switch to AT&T’s wireless network. AT&T has said that any mobile data consumed while watching DirecTV Now from an AT&T smartphone or tablet will not count against a customer’s monthly allotment.

That incentive risks giving AT&T and DirecTV an anti-competitive edge on other TV and wireless providers, regulators said in a recent letter expressing “serious concerns” over the practice. AT&T wrote back last week that consumers have “enthusiastically” embraced the ability to stream as much TV as they like and that it offers the same terms to other video providers, should they agree to accept them.