AT&T unveiled the bundling and pricing details of their latest streaming service, DirecTV Now, last Monday. It is evident that the launch of DirecTV Now will increase the competition among the streaming service providers. At present, PlayStation Vue and Sling TV are the major streaming service providers in the country. Analysts have already started discussing what the launch of DirecTV Now will mean for them, as well as what effect it would have on Netflix and pay TV industry.
RBC Capital Markets analyst Steven Cahall reported that DirecTV has unveiled “a potentially great product with Now, in our view, that leverages having some of the best programming costs in the business due to scale, as we think DirecTV’s programming costs are some 20 percent-30 percent below the industry average. This may force competitor products to come down to DirecTV’s price point even if their wholesale costs are much higher.”
Cahall argued that this is good news for not only the subscribers, but also it will “as a result likely mitigate pay TV sub erosion, though by how much is impossible to know just yet. On the flipside, we think some of those subs may come from smaller linear multichannel video programming distributors, and virtual multichannel video programming distributors’ churn would be higher.”
He further added, “We see the mitigation of TV sub erosion as THE biggest issue for media investors. We see DirecTV Now and future launches as constructive to media valuations.” Thomas Eagan, Telsey Advisory Group analyst added that he is optimistic on pay TV companies and he does not expect “material cannibalization yet from DirecTV Now.”
Eagan said that the latest service “could compete with [Dish’s] Sling TV, while Netflix [is] still a complement. While we estimate the number of broadband-only video households grows to 5 million this year, it’s still relatively small and price elastic to support multiple OTT players.”
“We, therefore, expect share shift from within OTT services,” he added. “We see DISH’s Sling TV (the only other live TV streaming service) as vulnerable due to the streaming issues that have lowered retention. Conversely, we see a neutral to possibly favorable impact to Netflix. With its original programming and low price, it remains a complement to a pay TV or streamed base package.”