Market Insight

AT&T targets new audiences with pay TV lite streaming service DirecTV Now

December 05, 2016  | Subscribers Only


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AT&T has launched its online pay TV service, DirecTV Now, taking aim at the 21.2 million households that do not have a pay TV subscription, and households on the brink of cutting the cord. The unveiling of DirecTV Now is the first step in the telco’s plans to deliver video over its in-house-developed IP infrastructure – AT&T developed all aspects of the platform and does not rely on any other technology partner.

DirecTV Now does not require set-top boxes, satellite dishes or annual contracts. The service is available to stream online on a variety of mobile and connected devices, supporting two simultaneous streams. There are four tiers of channel bundles, with HBO and Cinemax available as add-on packs:

  • Live a Little – $35/mo (60+ channels)
  • Just Right – $50/mo (80+ channels)
  • Go Big – $60/mo (100+ channels)
  • Gotta Have it – $70/mo (120+ channels)
  • HBO and Cinemax – $5/mo each

For a limited time, AT&T will offer its Go Big package of 100+ channels for $35/mo in an effort to attract customers at launch. Subscribers that sign up to the promotional offer will continue to pay $35/mo for as long as they keep the service (subject to typical annual price increases). The company also partnered with LeEco, a manufacturer of consumer-electronics (among other interests), bundling three-, six-, and 12-month subscriptions with purchases of 55-inch, 65-inch, and 75-inch+ TVs respectively. DirecTV is making a concerted effort to reach the main households’ primary TV sets, by being accessible via native apps on a plethora streaming devices.

The majority of popular cable channels are included, as AT&T has been striking programing deals with the majority of the largest content providers over the past year. Sports channels are also available, with ESPN available at the most basic tier. However, CBS and Showtime are currently missing from the line-up.

ABC, Fox and NBC live local channels are available in markets where the networks own and operate their own stations. Outside those markets, only next-day video-on-demand (VoD) content will be available from ABC, Fox and NBC until non-owned-and-operated station groups sign up. A large component of the new service is VoD, with over 15,000 titles available at launch. Streaming DirecTV Now will be zero-rated (streaming will not count against data caps) for AT&T wireless customers.

DirecTV Now is designed to fit the online viewing habits of its target audience with a wide device support at launch. Customers will be able to stream the service on computers, iPhone, iPad, Apple TV, Android mobile devices and tablets, Amazon Fire TV and Fire TV Stick, and Chromecast. Device support will extend to Roku streaming players, Roku TV, Amazon Fire Tablets and Smart TVs in 2017.

Notably missing at launch is cloud DVR support, currently available on Sony’s virtual pay TV service, PlayStation Vue and recently announced to be forthcoming on Dish’s Sling TV. However, given the size of the on-demand library, the lack of a DVR functionality will not be an issue for some subscribers, though others are likely to lament the inability to record content and view it outside the three-day catch-up window.

Our analysis

The launch of DirecTV Now is the fulfilment of AT&T/DirecTV’s long-time standalone online pay TV strategy, the genesis of which was the now defunct Spanish-language SVoD service Yaveo, which DirecTV launched in December 2014. When AT&T announced the planned launch of DirecTV Now in March 2016, it was keen to emphasise that the new service would complement its existing products. In its current form DirecTV Now accomplishes the task, with AT&T limiting the service by only allowing two concurrent streams and omitting 4K content and DVR functionality, a strategy that could facilitate upsell to the sister satellite service.

AT&T has made signing up to a subscription TV service more appealing to those who are more disposed to reject traditional pay TV plans. By offering lower-priced tiers, without the need for credit checks, the company is better-placed to attract cost-conscious and credit-challenged customers.

Compared to other online pay TV subscription choices, DirecTV Now offers a more comprehensive video service:

  • Netflix, Hulu, Amazon – Low-cost subscription on-demand offerings
  • Sling TV – 27 or 45 live linear channels offered at a starting price of $20/mo, with or without sports respectively
  • PlayStation Vue – 45+ channels offered for $30/mo ($40 in major metro markets)
  • DirecTV Now – 60+ channels offered at $35/mo

The high price tag in comparison to some rival services could limit DirecTV Now’s appeal – thanks to Netflix, some consumers have determined that they can sate most of their content needs for under $10/mo. As a result, DirecTV Now will face an uphill battle convincing newly-forming households that a $35/mo outlay for 60-odd channels provides significant value. On top of this, people who are forming new households are used to consuming commercial-free TV, so joining the linear content consumption paradigm may be hard for this population that has been raised in a low-cost on-demand world.

Cord-cutters are another story entirely, and IHS Markit believes this is where the most significant opportunity for DirecTV Now lies. The $35/mo price for 60+ channels is competitive as a standalone TV package. It is important to note, however, that customers opting for a DirecTV Now setup will still require a broadband subscription and therefore will not necessarily pay that much less than they do for a standard triple-play package. Where the service excels is in the fact that there are no additional hardware rental costs or long-term contracts, though consumers will need to purchase their own hardware to stream content to the TV.

One of the biggest pulls for the new service is that AT&T wireless customers can access content via the mobile network without this streaming counting towards their data allowance. AT&T hopes to avoid net-neutrality concerns by positioning this as DirecTV taking advantage of its Sponsored Data program, which is open to any content or service provider that is willing to sign up. However the deal could face further scrutiny because DirecTV is an AT&T subsidiary. Indeed, there has been some controversy over the company’s zero-rated data offer – we believe there may be issues regarding net neutrality as the company is making an intra-company purchase of data, i.e. doing a deal with itself. In addition to content and delivery costs associated with the service, DirecTV Now also pays for the data used by AT&T cellular customers.

DirecTV Now’s other major advantage, after zero-rated streaming, is its leveraging of AT&T’s pay TV scale. This means it can achieve significantly better margins than other online subscription pay TV services – IHS Markit understands that many new providers of these services have had to pay significant premiums for carriage when compared with traditional pay TV players. Those that already operate traditional platforms, meanwhile, have been able to leverage their existing carriage deals and scale.

Geography
USA
Organization
AT&T DirecTV
Research by Market
Media & Advertising
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