Five weeks after announcing a deal to acquireTime Warner (TWX) for $85.4 billion,the company once known as Ma Bell on Monday announced the launch of a multichannel streaming service that the telecom operator hopes can offset flat or declining subscribers for its wireless and pay-TV services.
The service, which will go live on Wednesday, targets the roughly 20 million to 25 million households that don't subscribe to any pay-TV service. At the top of that list are young people, those most unlikely to have a pay-TV contract, but also those in urban areas where AT&T satellite TV service DirecTV, which it acquired in 2014, has lagged its cable TV rivals.
"We have a new segment of the market that we want to address, and this platform lets us do that," AT&T executive John Stankey, head of its entertainment group, said at an event held in midtown Manhattan on Monday. "This is the foundation for how we're going to do things in the future."
DirecTV Now will go head to head with Dish Network's (DISH) - Get Report Sling TV and Sony's (SNE) - Get Report PlayStation Vue. In the coming weeks, they'll be joined by Alphabet's (GOOGL) - Get Report Google Unplugged and a similar service from Hulu.
The overarching question for AT&T is whether its ambitious effort to win over mobile users by offering them a do-everything streaming platform will make economic sense.
At $35 per month for 100 channels, AT&T is said to be operating on very slim margins, far slimmer than what its charged for decades through the traditional pay-TV bundle. The list of networks to appear on DirecTV Now includes every major content product apart from CBS (CBS) - Get Report , Netflix (NFLX) - Get Report and Amazon (AMZN) - Get Report .
Of course, both Netflix and Amazon operate online platforms, one very big reason that AT&T has invested so much time and money into DirecTV Now.
AT&T's Stankey addressed the issue of profitability by arguing that DirecTV Now will afford greater control over programming, advertising and consumer behavior.
"This has come together on terms that put is in a very enviable position from a cost-structure point of view," Stankey said. "This is bigger than anything we've ever done because we have total control of the product."
AT&T is betting that its comparatively low monthly price of $35 will distinguish it from its rivals and also attract those unhappy with the cost of the traditional pay-TV bundles, often priced at more than $80 per month. For AT&T wireless customers, DirecTV Now won't count against their usage plans, a point that rivals such as Dish have countered could run counter to federal regulations.
DirecTV Now subscribers also will be offered Time Warner's HBO for $5 per month, a full $10 less than the cost of HBO Now, the premium network's standalone offering. Cinemax also will be available for $5 per month. A larger selection of 120 channels will be sold for $70 per month.
NFL Sunday Ticket, DirecTV's exclusive package of NFL games, will not be part of the platform, though Stankey said AT&T is in talks with the league about bringing the service into DirecTV Now. As for CBS, which hasn't licensed its shows to DirecTV Now, Stankey said the platform may be targeted at a demographic that doesn't place a high priority on the network's content.
If CBS CEO Leslie Moonves' recent statements are any indication, the company appears content instead to sell its programming through its online streaming service, CBS All Access, which recently surpassed the 1 million subscriber mark. CBS also hasn't signed on with Hulu's own multichannel streaming service that's expected to go live early next year. Hulu is a joint venture between Disney (DIS) - Get Report , Comcast's (CMCSA) - Get Report NBCUniversal and 21st Century Fox (FOXA) - Get Report , with Time Warner taking a 10% stake in August.
DirecTV Now's content, aside from Time Warner channels, also will include networks owned by Disney, NBCUniversal, Fox, Viacom (VIAB) - Get Report , Starz (STRZA) , Scripps Networks Interactive (SNI) and Discovery (DISCA) - Get Report .
AT&T also is rolling out two other, smaller versions of DirecTV Now. AT&T wireless users will have the option of subscribing to DirecTV FreeView, an ad-supported product that will offer a variety of shows and some networks as an add-on to existing customers. A third tier, known as Fullscreen, will be built for iPhones and Android devices, offering the kind of video on-demand that younger audiences generally embrace.
Most important for investors, AT&T appears to be offering its flagship product for a price 30% lower than the most basic pay-TV bundle. Such a discount speaks to AT&T's eagerness to win market share and get ahead of Hulu and Google Unplugged in the race for the hearts and minds of Millennials.
AT&T is likely to tweak and reshape DirecTV Now, Stankey said, as it learns more about what "cord-cutters" and "cord-nevers" want from online television.
The success of DirecTV Now is also integral to AT&T's investment in Otter Media, a joint venture with Chernin Group, which recently announced the creation of a $500 million fund to acquire and develop video services for digital multichannel platforms. As part of that collaboration, actress Reese Witherspoon spoke briefly at the DirecTV Now event to publicize her company, Hello Sunshine, which AT&T described as producing exclusive video-on-demand content for DirectTV Now and DirecTV focusing "on positivity, humor and inspiration for women."
DirecTV Now also said its initial round of marketing would feature Taylor Swift NOW, a video catalog aimed at showcasing concert performances, behind-the-scenes footage and interviews with the singer-songwriter.
If DirecTV is well received, offering users an interface that delights rather than deceives, subscriptions could exceed 1 million in "short order," Macquarie media analyst Amy Yong said in a Nov. 16 investor note.