As it prepares to launch an IP-based video service that is more of a direct replacement to traditional satellite TV service in the first quarter of next year, AT&T will reconfigure and reposition its seminal streaming pay TV product, DirecTV Now.
Speaking at the UBS Global Media and Communications conference earlier this week, AT&T CEO Randall Stephenson said work is underway to “thin the content out” on the DirecTV Now bundle and “get the content out that’s really relevant to the consumer.”
Simultaneously, Stephenson seemed to indicate that further price hikes are in store for DirecTV Now, which already increased its base monthly fee from $35 to $40 over the summer.
“We’re talking $50 to $60,” he said. “We’ve learned this product, we think we know this market really, really well. We built a 2 million subscriber base. But we were asking this DirecTV Now product to do too much work. So we’re thinning out the content and getting the price point right; getting it to where it’s profitable.”
It’s widely understood that DirecTV Now—as well most virtual MVPD service—operates at a loss, with monthly price points that average around $40 market-wide simply not providing enough revenue to offset fast-rising programming costs.
For example, asked by an investment analyst last month if Dish Network’s vMVPD service, Sling TV, was profitable, company chairman Charlie Ergen remarked, “It depends on how you look at it. But under Charlie Ergen's definition of profitability, I think I'd like to make a little bit more money than we're making today.”
Both Dish and AT&T have expressed hope that innovation in advanced targeted advertising enabled by these IP-delivered services will eventually offset their generally lower subscriber revenue.
“Sling is really seeing explosive growth with its advertising revenue,” said Dish programming chief Warren Schlichting, keynoting last month’s Streaming Media West conference in Huntington Beach, Calif. last month. “We’re seeing incredible results with targeted advertising.”
But when pressed, Schlichting conceded that these results weren’t yet incredible enough to move the needle in any significant way on the balance sheet.
For its part, AT&T—which already is seeing DirecTV Now customer growth decelerate from its previously torrid pace—seems to be biting the bullet, and trading profitability for growth. AT&T is in effect re-positioning DirecTV Now to sit in the middle of its video value proposition, between its upcoming premium OTT service and its bottom-end AT&T Watch streaming service.
AT&T is prepping the launch of what Stephenson called “an over-the-top thin-client service” in the first quarter. The IP-based service will run on the open internet, with users plugging in a proprietary set-top that connects via USB port. AT&T hasn’t announced a price point for the new service, but it’s expected that it will be more expensive, and offer more channels, than DirecTV Now.