AT&T is prepared to shake up the pay TV business by launching DirecTV Now service. Analysts say that the aggressive pricing of AT&T’s internet streaming service could steal customers away from OTT rivals like Sling TV and PlayStation Vue and cable TV networks.
DirecTV Now service is designed to make the process of buying a mobile oriented TV, much fast and cheap than traditional satellite TV or cable TV services. There are no contracts, no installation or credit checks to get the service. However, analysts believe that the most popular bundle from DirecTV Now will the one with lowest margin.
The entry-level “Live a Little” bundle in DirecTV Now offers 60+ channels in a pricing of 35 dollars a month. At this price point, AT&T will lose money when the costs of subscriber acquisitions are taken into account. Besides that, AT&T is also offering free Amazon Fire Stick and Apple TV devices as incentives when users prepay for the service for 3 months or more. These costs together with customer service and support expenses might make the “Live a Little” bundle non-profitable for AT&T.
As per the per channel fee estimates by SNL Kagan, baseline bundle programming will cost thirty dollars a month. This means that the starter packages from DirecTV Now will have a negative operating margin. “Put simply, they aren’t going to make any money (on the base package),” Analysts Moffett and Nathanson said. “We don’t expect DirecTV Now to be such a runaway hit that it wrecks the market as we know it. But it would be a mistake to dismiss it as a non-event at its new pricing. It is still dangerous… both to the ecosystem and, most of all, to AT&T itself.”
The pricing structure of DirecTV Now reinforces the statement that the primary purpose of AT&T with the OTT product is to use it as a boost to their wireless business, as their wireless business has not shown much growth in the past quarters. AT&T’s plan is to make it attractive to buy both the services, because wireless customers of AT&T will have DirecTV Now streaming excluded from data caps.
Experts believe that AT&T will lose money with their special introductory offer of hundred channels for 35 dollars, even though they have not specified how long this promotional pricing will be available. Some even say that at pricing of 35 dollars, the package will have a negative operating margin of more than 7%.
“If the base $35 bundle is compelling enough, it could be quite attractive for consumers relative to the enhanced basic packs, which are at the heart of the churn-reduction strategy at companies like Charter, especially when combined with unlimited wireless data and no monthly set-top box costs,” Barclays analyst Kannan Venkateshwar wrote.