Should AT&T Be Worried As Google Unveils YouTube TV?

by Trefis Team
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Competition in the streaming TV market looks set to heat up, with Internet behemoth Google announcing that it will roll out a new service called YouTube TV in major cities in the United States over the next few months. AT&T (NYSE:T), which became the largest U.S. pay TV provider in 2015 after its acquisition of DirecTV, is likely to be paying close attention to Google’s moves, as the carrier is betting big on its steaming TV offering – DirecTV Now – to mitigate the effects of a shrinking U.S. pay TV market. Below, we take a look at how Google’s upcoming offering compares and whether it poses a legitimate threat to AT&T and other players.

See our complete analysis for AT&T | Comcast  | Dish Network | Google

We have a $44 price estimate for AT&T, which is roughly in line with the current market price.

 YouTube TV Has Major Broadcasters On Board, Still Lacks AT&T’s Selection

YouTube TV will be priced at $35 per month, in line with most entry-levels plans offered by other streaming providers including DirecTV Now. However, the channel selection still remains something of a mixed bag on account of the fragmentation of digital content rights. To begin with, the service will offer channels from 40 providers, including major broadcast networks – Fox, ABC, CBS and NBC, regional sports networks and a few dozen cable channels such as ESPN and Fox News. However, popular channels such as HBO and AMC will not be available at launch. Moreover, Google still needs to figure out deals with the network affiliate stations of major broadcasters in smaller cities, possibly implying that the service will only be launched in larger metropolitan areas to begin with. Overall, YouTube TV’s list of channels is significantly smaller than the 100+ channels AT&T offered under its $35 introductory pricing for DirecTV Now.

Google’s Tech Edge: Stronger Back-End, Ad Targeting Can Help 

While Google may not be able to compete head-on with major pay TV players in terms of channel selection in the interim, the company can count on its technology muscle to win over subscribers and other parties in the pay TV ecosystem. For instance, the YouTube TV service will offer unlimited cloud DVR, as well as an AI-powered search and recommendation system. Moreover, unlike DirecTV Now, which faced outages at launch, and many other streaming services which still face video freezing, YouTube’s massive cloud infrastructure and back-end systems – which deliver a billion hours of video every day – should allow it to provide a seamless viewing experience. YouTube has been the go-to destination for on-demand video for close to a decade, and its intuitive and relatively familiar interface could prove to be another selling point for Google.

Google may also have an advantage on the advertising front, given the rich customer data sets it derives from its Internet business. The company’s sophisticated ad-targeting capabilities could help it to improve ad rates and potentially help to shift content costs from customers to advertisers. Addressable advertising is a key area AT&T has been focusing on, and there is a possibility that Google could leapfrog the carrier in that respect. (related: Why AT&T Is Betting On The Addressable TV Advertising Market)

Google also stands to gain from the increasing prevalence of unlimited mobile data plans in the U.S. Over the last month, AT&T and Verizon reinstated unlimited plans, about five years after ending them for new customers. Meanwhile, smaller players T-Mobile and Sprint are both promoting competitively priced unlimited plans as their primary offerings. This could undermine any “zero-rating” advantages that AT&T could have provided with DirecTV now, creating a more level playing field for new entrants such as Google.

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