We unpacked AT&T's monster offer of 100+ channels for $35 dollars
DirecTV Now will be delivered over the internet wherever you are - no cable or satellite required - and the $35 would also cover any mobile data you use while watching TV on your phone, AT&T CEO Randall Stephenson said.If the package does turn out to be $35 per month, that's way below what Wall Street was expecting, which was around $50, according to analysts at Macquarie. It also seems to significantly undercut the price/value proposition of competitors like Sling TV and Sony's PlayStation Vue.
Here's what we found:
The catalogThe first thing to note is that though we know AT&T will be offering 100+ channels, the exact lineup has yet to be announced.
On Tuesday, Stephenson characterized it as "all the premium content you like to watch," and followed that up with, "This isn't the junk nobody wants."That seems to be generally true from what we know. AT&T has already signed deals with HBO, Discovery, NBCUniversal, Turner, Viacom, Disney, AMC, Scripps, Starz, and so on. The two big ones outstanding deals are Fox and CBS - though Stephenson mentioned Fox on stage Tuesday, so it seems like a done deal.AT&T will probably have all the big guns on board when DirecTV Now launches in November (and ESPN appears in an ad for the service, a question some had).
But still, that catalog of 100+ channels will likely be a mix of marquee and throwaway ones, and we don't yet know the composition.
ScaleTo get all these networks onto DirecTV Now, AT&T has signed a string of new "multi-platform" deals in the last few months, which span both satellite TV and streaming. Some of those deals were slated for renewal, but others were done expressly to launch DirecTV Now.
While DirecTV Now is being priced at $35 per month, this doesn't mean AT&T paid less to get streaming channels on the package than it does on its traditional pay TV packages.
"Media companies wouldn't expect a different price point [on the streaming deals]," RBC analyst Steve Cahall tells Business Insider. Contrary to what happens in "older" TV show deals with streaming services like Netflix, AT&T can't pick up these channels on the cheap for DirecTV Now.That said, one thing that could have helped AT&T get a better price is its scale. The pricing on these types of deals depends on volume, Cahall says. This could give AT&T an advantage over competitors reportedly looking to jump into the market, like Hulu and Google.
Here's the potential breakdown: 2 million cannibalized from DirecTV, 6 million from other pay TV, and 3 million "cord-cutters."The 2 million subscribers transferred from DirecTV's traditional packages should be a concern, but 11 million is a huge number, especially considering the current market leader, Sling TV, recently passed the 1 million subscriber mark, according to Bloomberg.
That's big-time scale.
'Thin' versus 'Thinner'A relatively good deal with networks won't, however, be enough to give AT&T the profit margins it is used to with DirecTV.MoffettNathanson estimated that the profit margin on DirecTV Now would be $1 per subscriber, a staggering drop from the $60 per subscriber on DirecTV's satellite plans, according to Variety.
One way AT&T says it will improve its margins is by ditching legacy equipment like satellite dishes, and drastically decreasing its customer acquisition costs.
At a recent Goldman Sachs conference, Stephenson said DirecTV Now will have "thinner" margins, but not "thin" ones. "This is a very, very low-cost customer acquisition product," he said.
Advertising evolutionLooking forward, AT&T sees advertising innovation as another way to cut costs.
At launch, DirecTV Now will have a mix of ads sold in the traditional way (by the network), and ads inserted by AT&T in a more dynamic way. This is similar to how it works on competitor Sling TV.
The thesis is that with AT&T's massive trove of user data it can provide ads that are less intrusive and more relevant - the grand promise of digital advertising. If proves correct, it would make the ad space worth more.And AT&T wants to experiment experiment with "new ad support models," Stephenson said Tuesday, with the goal being to "defray content cost escalations."
To make a $35 per month package work economically, especially with the margins DirecTV is used to, it seems that innovation will be necessary.
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