May 18, 2018
AT&T has confirmed that it will launch a premium over-the-top video service later this year, but it hasn't answered one fundamental question about how it will bring that service to market: What role will Google play?
This is no idle query. There's already evidence that AT&T Inc. (NYSE: T) is planning to use an Android-powered device for OTT streaming. Variety uncovered an FCC filing last October that showed an AT&T client device powered by Android TV.
Assuming this is the hardware that AT&T has planned for its new service, what kind of deal has the telco signed with Google (Nasdaq: GOOG)? And what does Google get out of it?
Figure 1: Source: FCC
There are two options for anyone running Android as a TV operating system. Option one is to go open source, using only the baseline code for Android and then developing functions like a TV launcher and integrations with third-party apps on top. Beyond the fact that the FCC filing mentioned above already suggests that AT&T isn't taking this route, it would be a difficult and time-consuming path for the telco to pursue. And it certainly wouldn't help with keeping investment costs down.
Option two is take on the full Android TV experience. Using Google's operator tier for Android TV, AT&T would be able to control the user interface for its service, maintain direct subscriber billing and offer access to features like voice control and Google Search. However, AT&T would also have to allow consumer access to other parts of the Android ecosystem, including competitive video apps.
On the surface, option two sounds like a reasonable tradeoff. In exchange for a licensing fee, AT&T gets a robust, well-supported platform, and even though users can migrate over to other apps, the default setting is for the telco's own service.
But, and this is a big but, there's another hidden cost to the arrangement: data. Google gets to collect new data on user behavior when Android TV is deployed.
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There's no way for us to know the terms of an agreement between AT&T and Google, assuming there is a deal in the works. But at the very least I imagine Google can ferret out what shows consumers watch and how they search for TV-related content. And if AT&T eventually migrates its entire customer base over to that OTT platform, that means new data on 25 million consumers across the US. For an advertising company, that's a gold mine.
Ironically, AT&T could also be assisting Google with data at a time when the telco itself is looking to stand up a new advertising platform for TV. AT&T CEO Randall Stephenson has been making a big deal of the company's advertising strategy, which it plans to put into effect if and when the deal to acquire Time Warner Inc. (NYSE: TWX) goes through. In fact, at the recent JPMorgan Telecom Media & Technology Conference conference where Stephenson first confirmed a new OTT service is on the way, he also said point blank about the company's advertising plans: "This is taking to the world of premium video what Facebook and Google have done so expertly in the world of digital." (Credit: Seeking Alpha transcript.)
AT&T is betting a lot of its future in TV on advertising. And yet it's doing so while also potentially giving more ammunition to one of its greatest rivals. There may be no better alternative, but it sure seems like a bit of a devil's bargain.
— Mari Silbey, Senior Editor, Light Reading
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