AT&T announced this week that it plans to take DirecTV over-the-top later this year through a multi-tiered streaming service that will be available to wireline and wireless broadband subscribers regardless of provider.
The top tier, to be called DirecTV Now, will feature “on-demand and live programming from many networks, plus premium add-on options,” which sounds more or less like Dish Network’s Sling TV OTT service. A mid-level tier, called DirecTV Mobile, will offer a stripped down video lineup and a “mobile-first experience.” A third, ad-supported free tier, called DirecTV Preview, will offer a “millennial focused” grab bag of digital-native content along the lines of Verizon’s Go90 service.
The announcement itself was no big surprise. AT&T obviously didn’t spend $48 billion to acquire DirecTV just to be in the satellite TV business — a business with little if any organic growth left in it — and extending DirecTV’s business onto broadband and wireless platforms is an obvious strategy. What is a bit surprising is the timing of the announcement.
As of now, AT&T has no programming lineups to announce for any of the tiers, no pricing information and no exact start date. And according to a Wall Street Journal report, negotiations with the networks to secure streaming rights have just begun.
“We do have some deals in place. We’re not being specific about which ones,” AT&T’s senior VP of strategy for its entertainment group, Tony Goncalves, told Re/Code, before adding, “There’s no question we have work to do there.”
While the announcement this week gave AT&T’s stock a booster shot, sending it close to its 52-week high, if DirecTV Now turns out to be vaporware, of if AT&T is not able to deliver something pretty close to what it’s promising, the shares will surely get hammered back down again and then some, as investors conclude it isn’t able to leverage its expensive acquisition into a new source of revenue. So, AT&T must be pretty confident it will be able to secure the streaming rights it needs from the networks to provide the types of packages it’s promising.
The key for AT&T will be to put together packages tailored to viewers who don’t currently subscribe to pay-TV service at price points that won’t encourage current DirecTV subscribers to trade down. So far, that’s not a trick anyone has managed to great effect, despite efforts by the likes of Apple, Intel and Verizon.
In large part, that’s because the media companies have been loath to allow distributors to do much tailoring of their offerings, whether on traditional or over-the-top platforms, clinging to the long-standing practice of bundling networks together in carriage negotiations — the low-rated and the must-have alike — and of insisting on tier placement and channel positions, which greatly reduce distributors’ flexibility in how they offer those channels to subscribers.
Dish’s Sling TV is perhaps the most successful multichannel OTT service in the U.S., but it, too, was forced to build its basic tier around ESPN — the most expensive channel on the dial — in order to carry the sports network at all. As discussed here in a previous post, that requirement creates challenging economics for Sling. When Verizon’s FiOS TV introduced its Custom TV bundles last early, which made ESPN optional for subscribers, ESPN sued. That lawsuit is now on hold as Verizon and ESPN try to reach a settlement, but Verizon appears on the verge of capitulation.
AT&T is betting that its bulked up scale on the traditional pay-TV, with the addition of DirecTV, will give the leverage with programmers to be able to do what others have not.
“These new video subscription models reflect the flexible content choices, viewing options and simple, transparent pricing that consumers want. AT&T intends to be the first company to deliver that flexibility, along with an effortless customer experience,” AT&T Entertainment Group CEO John Stankey said in a statement. “These offers will provide a broad range of customers with greater freedom and choice to watch, binge and even buy premium content, regardless of how and where they enjoy their entertainment,” (emphasis added).
How well placed is Stankey’s confidence?
Scale aside, pressure is clearly building on the networks to show more flexibility in carriage negotiations as consumers continue to cut and shave the cord, reducing networks’ reach and ratings. In comments at the Morgan Stanley Technology, Media and Telecom conference in San Francisco this week, Comcast CEO Brian Roberts indicated that pushback from distributors over expensive and restrictive carriage terms is growing.
“I think you’re going to see real tension around [the question of] is that sustainable? Is that a product that is going to shrink?” Roberts said.
Comcast, of course, owns NBCUniversal, which includes nearly a dozen cable channels along with two broadcast networks, NBC and Telemundo, and plays the bundling game from both sides. “[W]e’re going to be on both sides of that conversation” and hope to “help shape it in a way that is good for consumers,” Roberts said.
MTV Networks owner Viacom has begun shopping around a stake in its Paramount Pictures unit as a stopgap measure as its cable networks continue to bleed subscribers and advertisers. Regardless of what happens with Paramount, Viacom will face continued pressure from investors to find new ways to reach cord-cutting MTV viewers, giving greater leverage to would-be skinny bundlers.
Similarly, even the huge worldwide success of Disney’s “Star Wars: The Force Awakens” couldn’t paper over continued subscriber losses at ESPN, dragging down Disney’s shares. Disney officials are now touting ESPN’s participation in skinny bundles and signalling greater flexibility in how its suite of networks will be licensed in the future.
Maybe one big shove from AT&T will open the door all the way.