We have been fairly shocked at the low level of prominence given to the news this week that AT&T will sell DirecTV over the internet. In part, we can see that the lack of detail makes it tough to comment and that AT&T has at least alluded to this ever since it completed the acquisition. The impression is that this news is being slowly digested and therefore never makes it to the front pages.
For us, this is the new Mediaroom. Remember Mediaroom! And how it swept to power in 2004 to 2007. It was a technology wave that was going to allow Telcos to compete in video with Cable for the first time. It has altered the landscape globally over the past decade – and then died or got acquired by Ericsson, which amounts to the same thing. OK this is a service and Mediaroom was a technology, but in terms of where TV services are, they are equated.
There remain many questions unanswered, but the biggest to us will be just what technology will AT&T be using to make this work? Because anyone in the supply chain to what is now the number one pay TV operator in the US, will almost certainly pick up momentum, more contracts and like Mediaroom, rise in prominence.
Okay we admit, this is not precisely like Mediaroom, in that at the time no-one could quite do that Mediaroom promised, and so it was a single source of technology – Microsoft. In this instance although we know that AT&T has used Canada’s Quickplay Media to build its U-Verse App, and also to ingest and encode content for it, and to provide content security, we don’t know for sure that the new DirecTV offerings will use the same code. We are unsure of who wrote the DirecTV App, but there is a lot of technology implied.
It allows content to be downloaded for viewing later, it allows voice control from Nuance, and possibly uses Rovi search inside that? It uses Elemental for OTT encoding and uses Cisco Videoguard Everywhere for security, as well as Cisco for advertising insertion.
So it could rely on the AT&T suppliers or DirecTV’s or it may even use someone else entirely – the original AT&T U-Verse App came from Piksel.
But given that Quickplay media currently hosts 1,000s of hours of US studio content and integrates it into the AT&T EPG, our bet is that it might be too tricky to look elsewhere.
The new services come in three flavors; DirecTV Now which is more or less all of the content that was previously delivered on DirecTV; DirecTV Mobile a cheap version for smartphone customers with more VoD than live, and DirecTV Preview, which is advertising supported, but with limited content options. Clearly AT&T does not believe that the advertising route is the way to go and really only wants this as a preview channel. In the early days of mobile TV, when systems like DVB-H and MediaFlo were in use, preview channels became essential as a way to entice viewers into the paid zones. Much the same is done in music streaming services today.
Taking DirecTV across an internet connection OTT, will have much the same effect on DirecTV as Sling TV has had on Dish – it will give permission to the wider audience to substitute the more expensive service for the OTT version. We showed last month that Dish was shrinking and would be a $5 billion pure OTT business in as little as 15 years, earning less profit and a fraction of its size today. DirecTV will almost certainly begin in a few quarters heading down the same track and as soon as this service is available later this year, AT&T will almost certainly only give out total subscriber, arpu and churn numbers and not distinguish between U-Verse IPT subscribers, DBS (DTH) subs and OTT.
There are, of course, going to be ways of upselling these services for a wider TV bouquet with higher arpu and more premium channels, such as adding sports channels, but going forward the first thing for AT&T to do is embrace mobile TV first and get as many smartphone customers to take video as it possibly can.
Right now there are 19.8 million DirecTV homes, 5 million U-Verse homes and a mere 112 million smartphone customers to pitch these deals at and if Dish has managed to acquire around 150,000 new customers a quarter, chances are that AT&T can attract numbers closer to the 1 million mark for each quarter, post launch although the first chance to get a look at those numbers is likely to be Q4 2016, and prior to that pricing details, yet to come, will give us a much clearer view of how likely that is.
Also while AT&T is saying that customers can subscribe regardless of their broadband service, and that it will ask for no long term contract, not all of its own broadband lines will be able to deliver this service, and just how it will attract cable homes will be an interesting challenge. The same can be said of how they expect to protect DirecTV’s traditional satellite customers because we assume that the smartphone subscription could be “flicked” to a large screen anyway, but at a lower resolution. We suspect that video density and quality assurance and live sport is the way to keep existing U-Verse and DirecTV subs.
We know that AT&T U-Verse on an App reached about 10% of U-Verse homes and if that ratio was to maintain then at least 2.6 million homes would have this inside a few years, possibly with up to two people at each home, so 5 million. Another 5 million might be achievable from the mobile arm of AT&T where people do not already subscribe to this content, and that could see AT&T galloping at something like 1 million a quarter for 10 quarters, reaching 10 million subscribers to one service or another, with many more (more than 20 million) taking the free advertising driven channel.
One interesting side play is that Quickplay Media acquired the Network Operating Center that was used by Qualcomm when it ran Mediaflo in the US. AT&T also owns the spectrum that Mediaflo was sent over. There is definitely the potential for “scale” implementation of some live channels using LTE broadcast, a technology that A&T has already committed too.
Another issue here is that U-Verse TV App only harnessed about 20 TV channels when out of home, but that is now changing entirely, because essentially all homes are out of home for DirecTV, because it has worked aggressively to get to 90 channels out of home in its existing TV Everywhere app. But having these as TVE channels is not the same as having them in a new paid bouquet. AT&T and DirecTV may have to have twisted the arms of many content providers in order to secure the concessions needed to create this new OTT set of services.
When Comcast came to power as the largest pay TV company in the US, one of the first things it did was to squeeze content firms out of rights that previously they did not want to concede. Suddenly Comcast was the largest player in the US and no channel could afford to not be on it. Now it is DirecTV and AT&T’s turn and similar pressure will have been brought to bear. Comcast is really the only pay TV operator that has gone just as far in terms of gathering content access rights out of home.
All of this now suggests that in one single announcement AT&T has quietly bypassed Verizon in the Mobile First TV stakes, after almost two years of Verizon building its technology platform through technology acquisitions – Edgecast and Uplynk in 2013, Intel’s OnCue in 2014 and AOL in 2015. All of that technology cannot have been purely to launch the Go90 app, as it has very little traditional TV content onboard, and we would still expect to see a rival set of services from Verizon too in the fullness of time.
We have consistently been the only publication to point out that DirecTV had lost 730,000 customer homes from the moment that AT&T agreed the deal to buy DirecTV and when the deal was completed.
And while it may take it just one quarter selling these services to increase the number of its customers back to where they were prior to the deal being announced, it will take far longer to get the revenue streams back to where they were, because these services will be far cheaper.
Comcast for its part has yet to launch any kind of mobile service, and until it goes ahead and announces what the world expects to be a WiFi first mobile service, it will not be able to challenge this AT&T move.
AT&T said the services will launch towards the end of 2016, and go to smartphones, tablets, smart TVs, set top boxes, PCs and other internet enabled devices.
If we had to guess we would say that, initially at least, we suspect that pricing on DirecTV Now might go as low as the $35 level per month, and DirecTV Mobile closer to $20 and DirecTV Preview free.
AT&T claims that already it sends more than 60 million streams to its TV customers each month, but surely that must include all that Netflix traffic.