Following in Verizon’s footsteps, AT&T (NYSE:T) is looking to make a big play in the rapidly growing online streaming market. The second largest wireless carrier in the U.S. seems to have teamed up with Chernin Group to submit a joint bid for Hulu, a video streaming service co-owned by Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA) and Twenty-First Century Fox.
It is not yet clear how good a chance AT&T has of bagging the company considering that Hulu seems to have received competing bids from two other parties as well – one from DirecTV and the other from Guggenheim Digital Media jointly bidding with private equity firm KKR & CO LLP. However, if AT&T does manage to get its hands on the streaming platform, it will become the second wireless carrier to offer such a service after Verizon which launched its Redbox Instant service in a joint venture with Coinstar earlier this year.
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Online streaming to be a big mobile data driver
The growing interest in online streaming services is not only a result of the tremendous growth that the space has seen recently, which AT&T will definitely be looking to tap as an add-on to its existing U-Verse pay-TV service, but is also driven by the need to drive mobile data traffic. The wireless industry has seen subscriber growth stagnate, with the number of wireless users having exceeded the U.S. population in mid-2011 itself. Last year, AT&T saw its net subscriber additions decline by almost a half over 2011. As a result, the carrier’s focus is shifting from increasing its subscriber base to maximizing the revenue potential of the existing subscribers. With mobile data being the most important growth driver for AT&T’s value, the carrier is looking to drive video demand on smartphones and tablets as 4G speeds become ubiquitous.
The advent of high-speed 4G LTE technology has made streaming good quality videos at high speeds possible. As a growing number of users access Internet on the go, the demand for video streaming from mobile devices is also set to rise. If AT&T starts offering streaming plans bundled with its existing wireless data plans, it will not only be able to monetize this growing need for on-demand video but also put its high-speed LTE network to greater use. Even otherwise, a standalone streaming service can help drive the demand for videos up and cause customers to consume more data on their mobile devices. Having recently debuted its shared data plans, AT&T will be looking to increase mobile data usage and cause users to move into the higher tiers of their plans.
However, the prohibitively high cost of streaming videos on a tiered data plan could prove a big deterrent to widespread video consumption on mobile devices. While the mobile video streaming market may still see huge growth in the coming years, a large proportion of the traffic is likely to ply on relatively cheaper Wi-Fi networks, and not 3G/4G networks. This is where AT&T’s long-touted toll-free mobile data business model could come in, allowing subscribers to stream to their heart’s content without worrying about data caps. The cost of the mobile service would instead be borne by the content provider, in this case Hulu. Such a deal would give Hulu access to AT&T’s huge 70 million subscriber base, enabling it to compete against the likes of Netflix and Amazon. AT&T, for its investment in Hulu, would be able to better monetize its subscriber base without resorting to service price hikes.