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After losing out in a joint bid to gobble up Hulu last year, AT&T and The Chernin Group have joined forces again to invest more than $500 million in over-the-top video services.

AT&T Joins OTT Video Parade

Mari Silbey
4/22/2014
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Less than a year after failing to buy out Hulu in a joint bid, AT&T and The Chernin Group have joined forces again to create and roll out their own over-the-top (OTT) video services later this year.

AT&T Inc. (NYSE: T) and The Chernin Group announced Tuesday that they have formed a new venture to "acquire, invest in and launch online video businesses." Together, the two companies say they've committed more than $500 million to the new OTT bid, with the goal of developing "advertising and subscription VOD channels as well as streaming services." No other terms of the partnership were disclosed.

The Chernin Group already has its fingers in the OTT market with a majority stake in the subscription video service Crunchyroll. As former president of News Corp. (NYSE: NWS), Cherrnin Group Chairman and CEO Peter Chernin also has a strong background as a part owner of Hulu LLC , which is currently owned by 21st Century Fox (a recent offshoot of News Corp.), the Walt Disney Co. (NYSE: DIS), and NBC Universal (now part of Comcast Corp. (Nasdaq: CMCSA, CMCSK)).

"A critical part of The Chernin Group's strategy has been our significant focus on the online video industry, and joining forces with AT&T only further underscores our strategic commitment in this area as operators, investors and programmers," Peter Chernin said in a prepared statement. "AT&T's massive reach on these platforms across mobile and broadband and thyeir commitment to the online video space makes them the perfect fit for this venture with us."

AT&T, meanwhile, has its own reasons for plunging into the swiftly growing streaming video market. Such leading rivals as Verizon Communications Inc. (NYSE: VZ) and Comcast have each introduced subscription VOD services, with Redbox Instant by Verizon and Streampix, respectively. AT&T likely feels it needs an OTT service to stay competitive and to help bridge the gap between traditional TV watching and online video viewing across tablets, smartphones, and other connected devices.

In addition, like Verizon and Comcast, AT&T has built a broadband infrastructure for delivering OTT services. AT&T's fiber-rich U-verse network now has more than 11 million subscribers across the US, including 5.7 million YV subscribers, the company announced separately in its first quarter earnings results Tuesday. Plus, AT&T, similar to the two others, has been busily boosting its broadband speeds to 100 Mbit/s and more in many of its major markets. (See AT&T Turns Up Gig Heat in 21 New Metros.)

The money that AT&T and The Chernin Group are investing in their new venture doesn't appear to match what the two companies were willing to shower on Hulu last fall. The Chernin Group initially bid $500 million for Hulu on its own, but presumably that number went much higher when AT&T joined the bidding team. (See AT&T Joins Hulu Sweepstakes.)

When asked if the new venture came together as a result of the two partners' earlier attempt to acquire Hulu, an AT&T spokesperson demurred." The venture arose because both companies see a significant opportunity in the rapid growth of OTT video services and this alliance positions AT&T and The Chernin Group to take advantage of that, with each party bringing significant and complementary strengths," the spokesperson said.

In the partnership's news release AT&T Chief Strategy Officer John Stankey said, the two companies "are combining our skill sets to address the growing consumer demand for accessing content how and when they want it. Combining our expertise in network infrastructure, mobile, broadband and video with The Chernin Group's management and expertise in content, distribution, and monetization models in online video creates the opportunity for us to develop a compelling offering in the OTT space."

The two partners did not spell out exactly when they will introduce the new OTT service. Nor did they say which markets would be rolled out first.

— Mari Silbey, special to Light Reading

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KBode
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KBode,
User Rank: Light Sabre
4/23/2014 | 1:21:30 PM
OTT Conflict of Interest...
The thing companies like AT&T and Verizon haven't figured out yet is to disrupt in OTT, you need to offer a disruptive and innovative product at a great price. If you do that, you cannibalize your existing TV subscribers, so execs wind up sabotaging their own product sooner or later fearing it's going to rattle the status quo. $500 million, or $30 billion won't change that.
DOShea
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DOShea,
User Rank: Blogger
4/23/2014 | 11:54:07 AM
Other acquisition possibilities
I wonder if they made attempts other attempts to acquire other OTT video companies after missing out on Hulu--seems like given the time between the Hulu effort and this announcement, maybe they did?

Also, I guess OTT video is for real if AT&T is involved... (yes, I'm kidding)
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