AT&T Puts Finishing Touches on DirecTV Now

AT&T will launch its over-the-top streaming service DirecTV Now next Monday at a press event in New York City, but the final elements of the offering, as well as many aspects of the environment within which the telco will introduce its OTT product, are still coalescing.

Alongside Fox Networks, AT&T Inc. (NYSE: T) announced yesterday that it's signed an agreement to bring Fox content to the DirecTV Now package. That includes: "Fox News Channel, Fox Business Network, FX, FXX, FXM, FS 1, FS 2, Big Ten Network, 18 Fox regional sports networks, National Geographic and Nat Geo Wild." According to AT&T, there is also a "framework" in place for bringing Fox broadcast content to DirecTV Now customers.

It's unclear, however, exactly how AT&T will incorporate Fox programming into its new service. CEO Randall Stephenson announced in October that DirecTV Now will sell for a baseline price of only $35 per month, and the company has added that the OTT product will feature more than 100 channels, including live and on-demand programming.

Yet it's still unknown which content will be included in the basic DirecTV Now package versus which content will be sold in premium add-on packs. AT&T has also confirmed that content from Walt Disney Co. (NYSE: DIS), Viacom Inc. (NYSE: VIA), Scripps Networks , Home Box Office Inc. (HBO) and others will be part of the service. It has also said that if it gets approval to acquire Time Warner Inc. (NYSE: TWX), additional programming from Time Warner-owned networks and Warner Bros. Studio will join the lineup as well.

The problem for AT&T is that in selling DirecTV Now at a $35 price point, the telco will have to operate on razor-thin margins. Stephenson has made clear that the low price wouldn't have been possible at all without the acquisition of DirecTV and the programming agreements that transaction brought with it. However, even with the favorable licensing rates achieved through DirecTV's buying power, AT&T will still have to walk a fine line to make DirecTV Now attractive to consumers while also not cannibalizing its traditional satellite TV service where operating margins are much higher. (See also Why DirecTV Now May Flop.)

One way AT&T is likely to try to drive greater profit is through new advertising strategies. On the same day the operator made public its extended programming deal with Fox, AT&T also announced plans to acquire Invidi Technologies Corp. in a joint transaction with Dish Network LLC (Nasdaq: DISH)and WPP Group plc . Invidi, which specializes in addressable advertising, will still operate independently, but its new owners will appoint representatives to the company's board of directors, and AT&T will hold a controlling stake in the company. Through addressable advertising, AT&T could increase its income from DirecTV Now by selling more valuable ad spots targeted directly to individuals considered more likely to buy an advertiser's product.

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On yet another front, AT&T is working to increase the attractiveness of DirecTV Now by exempting any video that its consumers stream with the service from monthly mobile data caps. Called zero rating, this practice is technically allowed under US net neutrality rules, but the Federal Communications Commission (FCC) expressed concern earlier this month that AT&T's implementation of it may be anti-competitive. (See AT&T & Trump Tangle Net Neutrality's Web.)

AT&T responded to the FCC's concern in a letter to the agency this week. The company pointed out that it offers the same zero rating options that it uses for its own mobile video services to other content providers. While the FCC suggested that AT&T effectively doesn't pay anything to make its own services cap-exempt, the operator responded that escalating usage of its network means that AT&T does have to spend real money on infrastructure investments to keep up with demand.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

KBode 11/22/2016 | 4:01:53 PM
zero rating... I remain curious to see if DirecTV Now is zero rated against wireless caps alone, or also AT&T's fixed-line usage caps.
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