After spending
nearly $50 billion in the summer of 2015 to acquire DirecTV,
AT&T Inc. is preparing to roll out an internet video service that could upend its satellite-television business along with the rest of the pay-TV industry.
The service,
called DirecTV Now and expected to launch by year-end, will stream dozens of live channels to televisions and mobile devices without the need for a satellite dish, cable box or annual contract. Unlike
Netflix or Hulu, this over-the-top service is intended to provide a full cablelike lineup for households.
AT&T executives aren’t concerned that a lower-priced internet video service—observers expect around $50 a month—could eat into its existing TV business, which had 25.3 million subscribers who paid an average monthly bill of $117 in the latest quarter. “That means you have found something that the market really, really wants,” Chief Executive
Randall Stephenson said last month, at an investor conference.
DirecTV Now will enter a promising but increasingly crowded marketplace with customers paying as little as $20 a month to stream almost 30 channels from
Dish Network Corp. ’s Sling TV service to as much as $75 a month for a bundle of more than 100 channels, including HBO and Showtime, from
Sony Corp. ’s PlayStation Vue service.
AT&T says it is going after 20 million U.S. households that don’t pay for home TV, including
cord-cutters and younger customers. But the telecom giant isn’t planning a so-called
skinny bundle. It boasts of having more than 100 channels signed up for DirecTV Now, including ESPN, Discovery Channel and Nickelodeon.
“We think skinny bundles have very small application in the market over time,” said John Stankey, head of AT&T’s entertainment business, at an industry conference earlier this year. People in a household are going to want to watch different things, he said. “There’s a reason to look at a much broader offering of content.”
The big bundle strategy opposes moves from channels that have tried reaching viewers on their own, like CBS Corp. and
Time Warner Inc. ’s HBO.
It is also an attempt to get ahead of others reportedly lining up wider cablelike services, including
Apple Inc.,
Amazon.com Inc.,
Alphabet Inc. and Hulu, which is owned by Comcast Corp., Time Warner,
Walt Disney Co. and
21st Century Fox Inc. (21st Century Fox and
News Corp, which owns The Wall Street Journal, share common ownership.)
The Wall Street Journal
reported Wednesday that Alphabet’s Google Inc. has signed a deal with CBS and is in advanced talks with other big media companies to license channels for a planned streaming TV bundle to be housed in YouTube.
Mr. Stephenson said DirecTV Now would have a “very, very aggressive price.” The company hasn’t disclosed details. UBS analysts project the monthly price at $50 while
Barclays estimates $50 to $60. The number of streams people can view at the same time will be limited to two, according to a person familiar with the company’s plans.
“It will be the first indication for the public demand of this type of product,” said UBS analyst John Hodulik, referring to a cable-replacement product from a major pay-TV service. “This is the first big launch.”
UBS projects that AT&T will have 2.5 million subscribers for the service by 2020. Mr. Hodulik expects a short-term hit to margins as the company spends to set up and market the product.
Mr. Stephenson says the profits on the new service will be “thinner than what we are accustomed to” but stressed the product won’t require a lot of capital investment. Compared with the traditional satellite service, DirecTV Now won’t require hardware or visits by technicians. Sign-up and billing will be done online.
AT&T’s content chief Dan York, who held the same role at DirecTV before the deal, has spent the past year renegotiating with content providers to get the necessary rights. AT&T still has deals to close, including with CBS and 21st Century Fox.
AT&T has put together other pieces it needs; In June, it bought Quickplay Media, which built the platform for the service. AT&T also has a joint venture with media mogul
Peter Chernin called Otter Media that focuses on producing online video.
The company plans to bundle DirecTV Now with its home broadband service and wireless plans, which could help reduce customer churn. Wireless data used to watch DirecTV Now on smartphones or tablets will be free for AT&T’s more than 77 million mainstream wireless subscribers.
The cable companies aren’t sitting still. Both Comcast Corp. and
Charter Communications Inc. —the largest U.S. broadband providers—recently said they plan to begin selling wireless phone service to their customers.
Comcast CEO
Brian Roberts, however, has signaled he isn’t planning to follow AT&T’s lead, saying the economics are unproven for over-the-top services. “Out of footprint, it’s not clear that that’s the right strategy for us,” he said in July.
Meanwhile, AT&T is under pressure to deliver gains from the DirecTV deal, which boosted video revenue to about a fifth of its total business. While AT&T has added satellite users, it has lost almost 200,000 pay-TV subscribers overall since closing the deal.
“They are going to where the people are and that is increasingly [over-the-top] and mobile,” said Peter Csathy, chairman of CreatvMedia, an advisory firm. “It is a smart strategy.”
—Ryan Knutson and Shalini Ramachandran contributed to this article.
Write to Thomas Gryta at
[email protected]
