As expected, AT&T launched its new streaming service, DirecTV Now, which offers a cable-style package of more than 100 channels for the low price of $35 a month. There are some significant weak spots in the new offering, and the reasons for those weaknesses are illuminating.
As Coins2Day‘s Aaron Pressman has pointed out, users won’t be able to stream NFL football on their smartphones or watch the football league’s Sunday Ticket. The new service doesn’t include CBS (CBS), and it doesn’t offer a digital-recording function.
In addition to all of those caveats, local affiliates of national networks in many cases won’t be included, and users can only have two active streams going at one time.
Not only that, but the price for those 100 channels isn’t going to be $35 a month for very long either. That is an initial discount to the actual price, which will be $60 a month for 100 channels and $70 a month for 120 channels, with HBO (TWX) costing extra. At those prices, the new offering is very similar to the average cost of traditional cable for most users. According to the FCC, the average subscriber pays about $70 a month for their service.
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So DirecTV Now isn’t really going to be much competition for cable service price-wise, even if you include the fact that streaming it won’t count against a user’s bandwidth usage thanks to AT&T’s “zero rating” policy, which is arguably a clear breach of net neutrality rules.
In other words, DirecTV doesn’t really look like much of a “cable killer” at all. And there’s a good reason for that. Namely, that AT&T doesn’t actually want to kill cable because it still makes a significant amount of money from its existing cable-style DirecTV service.
What the company is trying to do is walk a tightrope between two equally unattractive options. It knows “cord cutting” is becoming a larger and larger phenomenon, especially for younger customers, so it needs to offer some kind of streaming cable-style service. But if it makes that service too attractive, it risks cannibalizing its own business.
In a research report on the new service, UBS analyst Doug Mitchelson said that DirecTV Now’s various pricing levels “line up reasonably closely to DirectTV’s traditional satellite packages… suggesting minimal disruption in terms of media company monetization.”
In the long run, of course, streaming services like DirecTV Now, Sling TV, and Hulu’s forthcoming service are absolutely going to cannibalize existing cable and satellite services. What AT&T and other providers are trying to do is manage that process as efficiently as possible.
Hulu and YouTube are tapping into cable. Watch:
The biggest problem for carriers like AT&T (T) and Comcast (CMCSA) is that the TV universe has become so fragmented and disjointed that it’s difficult to come up with a new “bundle” that can produce the same—or even similar—amounts of revenue to their traditional cable and satellite businesses.
Everyone wants to have their own streaming service, so networks like CBS are rolling out products like CBS All Access. Many of them want special treatment for their content, which is why negotiations with new services like the one Google (GOOGL) plans to roll out soon have been so contentious, and could also explain why CBS isn’t part of DirecTV Now.
In broad terms, the challenge is not unlike the process that newspapers and the rest of the print media have been going through for some time now—trying to manage the decline of their existing business, which continues to generate significant amounts of revenue but is shrinking, while at the same time growing new businesses amid a host of new, more nimble competitors.
Whether AT&T can generate enough new business with DirecTV Now to make the effort worthwhile financially, without cannibalizing its existing business too much, is the billion-dollar question.
