Will AT&T’s Streaming Offering Be A Success?

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AT&T (NYSE:T) is slated to launch a new streaming video service later next year. While the company already operates the DirecTV Now streaming TV service and the low-cost WatchTV offering, which both focus on live television, the new offering will be geared towards on-demand content from the recently acquired Warner Media properties. Below, we take a look at some of the trends that are likely to drive the company’s results.

We have created dashboard analysis, Sizing up potential revenues from AT&T’s upcoming streaming business. Users can modify key variables to arrive at their own revenue estimates for the new service.

AT&T’s Control Over Last-Mile Distribution Gives It An Advantage 

The offering could have a good shot at success, considering AT&T’s wide distribution footprint. The company has over 80 million subscribers (not unique) across its consumer wireless, pay TV and broadband operations, and it could bundle the new streaming service with its other offerings. AT&T’s control over the content and distribution could also play to its advantage, with the weakening of net neutrality rules and relatively lower FCC oversight. For instance, the company currently limits streaming video to standard definition on its basic unlimited wireless plans. It’s possible that AT&T could allow full HD or 4K resolution on its own video service while limiting resolution for rival video services, giving it a competitive advantage.

Strong Library Of Content

There has been a strong uptake for premium content in recent years. For instance, last year HBO added 5  million domestic subscribers, with revenue growing 11%, marking the strongest growth in about 20 years. Netflix has also witnessed robust growth in recent years, as its U.S. subscriber base has expanded to over 60 million users from under 40 million in 2014. While AT&T hasn’t provided details on the exact titles that the service will have, the company has access to a deep portfolio of premium content from WarnerMedia’s TV and movie franchises, including DC Comics and Harry Potter, as well as HBO.

AT&T also appears to be tweaking its content strategy to better align with the streaming model. For instance, the company previously indicated that it was looking to increase investment in HBO’s content while creating a more consistent schedule that could help drive down seasonality and consumer churn. Moreover, the company is likely to keep a lot of its content exclusive to create a compelling streaming offering, although it would be forgoing some revenue that it garners from licensing to third-party buyers.

Sizing Up The Potential Revenues

We estimate that the service will be able to garner a total of 20 million users by 2022, two full years post-launch (12 million AT&T subscribers and ~8 million other subscribers). AT&T is likely to offer the service with three subscription tiers – a low-end option that focuses on movies, a mid-range option that will include WarnerMedia TV series and blockbuster movies, and another tier that includes the content from the first two offering along with original series, likely from HBO. We assume that the average price of the service will stand at about $10 per month for non-AT&T customers and an effective rate of about $8 for AT&T users. Considering this, the total revenues for the service could stand at a little over $2 billion by 2022.

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