AT&T Gives Skinny on Its New Bundle

Taking the stage Nov. 28 at DirecTV Now’s New York launch event, Brad Bentley, CMO of AT&T’s entertainment and internet services unit, offered something of a mantra for the unbundling world.

“The challenge with skinny bundles is that your skinny is different from my skinny, which is different than someone else’s skinny,” Bentley said.

AT&T’s skinny launched Nov. 30, offering what the company sees as another proof point for the value of its pending merger with Time Warner. The service, with monthly prices ranging from $35 to $70, puts DirecTV in the skinny derby with PlayStation Vue, Dish Network’s Sling and forthcoming offerings from Hulu and Google.

John Stankey, CEO of AT&T’s entertainment division, declared the rollout to be bigger than the debut of the company’s U-verse MVPD a decade ago.

“It’s really important to understand that this is the foundation for how we are going to do things in the future,” Stankey said. With the mobile-optimized platform on which DirecTV Now will sit, “for the first time in our history, we have control of the whole stack.”

The service has a few notable gaps in its content offering (leaving aside the tech glitches that plagued its opening days). One is CBS and Showtime, with which AT&T has yet to reach carriage terms. Sports, too, is not overly abundant, notably the hallmark NFL Sunday Ticket package that helped build DirectTV’s satellite MVPD reputation.

The pricing, especially the offering of HBO and Cinemax for $5 apiece, made many Wall Street analysts wonder how AT&T would make the service profitable. Tom Eagan of Telsey Advisory Group calculated that the promotional offer of $35 a month for 100 channels would equate to a negative operating margin of more than 7%.

Another risk factor is the company’s stated intention to address the roughly 20 million households not currently in the bundled cable ecosystem. While that unto itself is not a wholly unusual strategy, execs spoke throughout the launch event of reaching the subset of customers within that 20 million who resist credit checks and two-year contracts that are common among traditional MVPDs. It is difficult to know how reliable and viable such a base will prove.

Analysts Craig Moffett and Michael Nathanson issued a report noting the potential for DirecTV Now to shake up the market even if it proves little more than a loss leader for AT&T. “We don’t expect DirecTV Now to be such a runaway hit that it wrecks the market as we know it,” they wrote. “But it would be a mistake to dismiss it as a non-event at its new pricing. It is still dangerous…both to the ecosystem and, most of all, to AT&T itself.”