AT&T’s New Streaming TV Service Is Poised For A Strong Start

AT&T‘s (NYSE:T) DirecTV Now streaming TV service will be available to customers from November 30, marking the carrier’s most important launch since its 2015 acquisition of satellite TV behemoth DirecTV. The service, which is targeted at cord cutters and other households without pay TV services (a market estimated to be as large as 20 million), could be poised for a strong launch given its attractive pricing and content offerings as well as AT&T’s marketing muscle. Below we outline some of the key attributes of the over-the-top service and how it could eventually benefit AT&T’s entertainment unit.

We have a $44 price estimate for AT&T, which is about 10% ahead of the current market price.

See our complete analysis for AT&T here

Initial Promotions Appear Very Strong, But There Are Some Minor Drawbacks

AT&T appears to be going all out to promote the service. For a limited time, the carrier will sell a DirecTV Now bundle that includes 100+ channels, usually priced $60 a month, for $35 a month. Users will be grandfathered in at the same pricing as long as they do not cancel their subscriptions. This represents a strong value proposition compared to rivals such as Sling TV (which starts at $20 for 25 channels) and PlayStation Vue ($4o onward for 45+ channels). However, the carrier’s standard pricing will only be marginally better than rivals, with a 60 channel package selling for $35 a month and a 120 channel package priced at $70. AT&T will also offer subscribers who prepay for three months an Apple TV streaming device. The carrier will also allow subscribers to add HBO for just $5 a month, well below the $15 that HBO charges for its stand-alone app, HBO Now.

That said, there are some minor drawbacks. For instance, the service will launch without channels from CBS, and live content from ABC, NBC and Fox will only be available in a few cities, implying that sports programming will not be available to a large part of the potential market. The service won’t launch with an online DVR, which allows customers to record programs for later viewing. Moreover, DirecTV’s most valuable content offering, the NFL Sunday Ticket package, will not be available on the over-the-top service, although AT&T says that it is looking at the possibility of bringing it on.

How The Service Could Prove Profitable To AT&T

Despite the attractive pricing and initial promos, DirecTV Now should make financial sense for AT&T over the long run. Content costs account for the single largest line item for streaming TV providers, and it is likely that AT&T will have significant bargaining power with content distributors, as it has the largest pay TV subscriber base in the U.S. (about 25 million subscribers). Moreover, the carrier’s push into content creation with the proposed Time Warner acquisition could also help keeps costs down. AT&T will also improve ad targeting on DirecTV Now, leveraging its customer data sets, potentially allowing it to shift a portion of content costs from subscribers to marketers, who would also stand to benefit from better ad impact compared to traditional cable TV.

Customer acquisition costs are also expected to be meaningfully lower compared to AT&T’s other pay TV brands such as DirecTV and U-Verse, as AT&T is likely to market the service online and also by cross-selling to its telecom customers. For example, DirecTV Now will be zero-rated for AT&T’s wireless customers, meaning that it will not count towards their monthly data cap (although this has already raised some net neutrality concerns at the FCC). AT&T will also be able to save on costs related to installations and maintenance, as customers will simply need to download apps onto their smartphones or internet-enabled devices.

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