The hyperbole was on high boil Wednesday as AT&T's John Donovan made some big pronouncements, but little detail, about how the company is evolving and transforming its TV business.
At the Credit Suisse Communications Conference in New York yesterday, Donovan was asked about how AT&T's pay-TV and streaming video plans, including recent price changes for DirecTV Now and a coming "thin-client" version of the fuller-freight DirecTV service that will be delivered via the Internet rather than via satellite.
"We're going to transform our product," Donovan said. "It's the consumer product I'm most excited about since the iPhone. It radically reshapes what your concept of television is."
But how, exactly? After all, the market is teeming with relatively new OTT-TV options, with many of those services also grappling with razor-thin margins thanks to the continuous rise of programming costs. What TV magic does AT&T have in its bag of tricks?
Here's where AT&T's vision for the future of video and pay-TV gets a bit hazy. The company, perhaps to keep its competition guessing or because it's still trying to figure out how it's going to truly offer something new and different, is not being very clear on this count.
"We think we're going to be disruptive in the market on features and capability, but we need to evolve our product," he said.
Donovan was later pressed if he'd care to elaborate on the innovations AT&T will bring to bear to pay-TV.
"No," he responded, then jokingly chided his inquisitor for asking a question he already knew the answer to, along with a backhanded compliment. "You could be a reporter."
Donovan was a bit more forthcoming on the timing of the new thin-client DirecTV product, noting that it's expected to debut sometime in Q3 2019. That offering is expected to center on an inexpensive AT&T-supplied Android TV-powered box alongside streaming support on various retail streaming platforms.
Despite Donovan's dodginess about the features and capabilities that will grace that product, putting an OTT version of DirecTV's satellite TV packages makes a lot of economic sense. For starters, the cost of acquisition of an OTT-TV customer should be much lower than it is for DirecTV's satellite TV service. There's less (and cheaper) equipment involved, and the OTT version should allow for simple customer self-installs.
And that product should help DirecTV/AT&T expand its addressable market. Donovan estimated that about 20% of US households can't get satellite TV due to line-of-sight issues and other restrictions. He said DirecTV, on occasion, will role a truck to a new customer only to find that the customer isn't eligible or capable of getting the service -- a big waste of time and money.
"It's not immaterial," Donovan said of the portion of the market that the new product will allow AT&T to reach, noting that the company has a database of consumers who can't be served with satellite but would be eligible for the new thin-client TV product.
That product "is going to be a great opportunity for us to have a product that's not only competitive but one that we would expect to take some share with," he said.
AT&T could use something that steals some share, as its video business has been struggling alongside the broader pay-TV industry. The company lost 627,000 video subs in Q1 2019, including 544,000 legacy "premium" TV subs (DirecTV satellite and U-verse IPTV) and 82,000 DirecTV Now subs as OTT customers continued to roll off after early, heavily discounted rates dissipated.
An SVoD assist?
Donovan didn't advance the ball much regarding AT&T's plans to launch a subscription VoD service in beta form later this year and reach full commercial deployments in 2020. AT&T has alluded to plans to offer that product to traditional pay-TV distributors, so it seems likely that AT&T will attempt to package in this new SVoD product with its pay-TV offerings.
But, following an earlier analyst's note that AT&T is now looking at a single-tier SVoD product (rather than one with three separately priced tiers with a different content mix), The Wall Street Journal reported Thursday that the new offering will cost $16 to $17 per month.
Per the WSJ, the offering will include HBO, Cinemax and Warner Bros content, and cost just a bit more than HBO Now, HBO's standalone, direct-to-consumer OTT subscription service that fetches $14.99 per month. At the reported price, AT&T's new SVoD will carry a big premium over Disney+, a service set to debut in November for $6.99 per month.
Bolstering the bundle
AT&T is also hopeful that its new thin-client video option will refuel a service bundling strategy, making it much easier to combine TV with its broadband products.
On that point, Donovan also provided an update on AT&T Fiber's progress, predicting that the unit will add 1 million subs this year, with roughly two thirds of them coming from cable. That prediction is in contrast to recent analysis that found that most of the new AT&T Fiber subs are coming from existing AT&T broadband subs (including U-verse customers) that have migrated or upgraded to faster, fiber-fed Internet service.
While AT&T's DirecTV merger commitment was to have fiber deployed to 12 million locations by June 2019, Donovan reiterated that the number will be closer to 14 million.
"We have a lot of inventory now," Donovan said, confident that AT&T Fiber is in position to achieve service penetration of 50% to 55% in as little as 24 months in some markets.
- Bulk of AT&T Fiber Sub Growth Coming From AT&T – Analyst
- US Pay-TV Subs Erode at Record Pace in Q1
- AT&T Adds Locast App to DirecTV, U-verse
- AT&T's SVoD Services Will Be Pay-TV Friendly
- AT&T Loses 627K Video Subs in Q1
- AT&T's SVoD Service to Cost More Than Disney+, Says Analyst
— Jeff Baumgartner, Senior Editor, Light Reading