AT&T will formally unveil the DirecTV Now service on November 28. CEO Randall Stephenson said that the service will offer 100+ channels and all these channels would be offered for a very low price of thirty-five dollars a month. Many analysts think that the release of DirecTV Now service will speed up the demise of pay TV services.
“Ma Bell is about to set the tone for the industry; all eyes are on the success of DirecTV Now, as well as AT&T’s $85 billion deal to buy Time Warner,” Amy Yong of Macquarie Research says. Then again, Michael Morris of Guggenheim Securities’ predicts that DirecTV Now and a live streaming offering from Hulu will be “the most incrementally covered and discussed topic in the pay-TV and media industries over the coming months.”
In American economy, pay-TV companies generate some of the heaviest profits. As per the statistics, distributors collect an average of ninety dollars per month from the hundred million households across the country, and if the advertising sales were also considered, pay-TV business accounts for about 200 billion dollars per year in total sales.
The system is strained, as subscribers, whose inflation-adjusted revenue has been without much change for the last decade, struggle to cope up with the annual hikes of pay TV prices. Yet this has resulted in a vicious cycle. As the number of subscribers decline, providers will have to raise the prices, which in turn will make subscribers or potential subscribers to search for alternatives.
Experts believe that AT&T may have a solution if the low prices for the DirecTV Now service will win wireless users from T-Mobile, Sprint, and Verizon. This is the only way the DirecTV Now initiative from AT&T would make some sense.
Michael Nathanson and Craig Moffett of MoffettNathanson Research estimate that the programming costs of DirecTV Now could come to thirty-four dollars per user per month. “That would leave DirecTV’s gross margin per subscriber at around $1. Yes, $1,” they say. “DirecTV’s margin after [subscriber acquisition costs], customer service, transport, computing, and storage costs would be negative.”
On the other hand, it seems that the programmers are happy to have yet another source of distribution revenue. NBCUniversal, Disney, Fox, Discovery, Time Warner, Viacom, A&E Networks, Univision, Scripps Networks, and AMC Networks said that they would be represented in the lineup of DirecTV Now service. There are not much details about the CBS Network though, who have their own subscription streaming service named CBS All Access.