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Some 10 months after closing its $48.5 billion purchase of DirecTV, AT&T has introduced a flurry of products aimed at exploiting its position as the largest pay TV service provider and the second-largest wireless communications company in the U.S. It’s combining video, broadband and wireless offerings in a variety of packages, including deep discounts for wireless service, mobile video and unlimited data plans. It has also raised some eyebrows with a plan to migrate U-verse TV subscribers to DirecTV, a move some see as a factor in the steep subscriber declines in its wireline business.
Most recently, AT&T formed a joint venture with former Fox chief Peter Chernin called Otter Media for long- and short-form content with three over-the-top services — DirecTV Now, DirecTV Mobile and DirecTV Preview — expected to debut later this year. It’s beginning to seem like investors will need a scorecard just to keep track of the latest movements in the phone company’s lineup.
AT&T Entertainment Services senior vice president of strategy and business development Tony Goncalves spoke with Multichannel News senior finance editor Mike Farrell about AT&T’s strategic direction and plans to navigate the evolving world of voice, video and data. Edited highlights follow.
MCN:It seems that DirecTV’s role in AT&T Entertainment has changed even in the short time since the merger was completed. Can you talk about that?
Tony Goncalves: I think, at a macro level, there are shifts in the value chain happening. The definition of a distributor is changing, but at the macro level our video strategy is pretty much intact. We were pretty overt, we were moving rather aggressively from a satellite-only and an IPTV-only video provider to one that would provide high-quality video to consumers, regardless of the connection. The OTT announcement we made earlier last month — ubiquitous delivery of video content across managed and unmanaged networks is our approach. One thing we bring to the table for both the consumer and the industry is the fact that we’re a network and connectivity company at heart. So we should be able to move the bits pretty efficiently between the origination and the end point for the consumer.
MCN:Right after the deal closed, there was some really deep discounting for handsets and a push toward pairing video service with cellphone service. Now, you’re moving toward an OTT product. Was that always the intention or is it more of a reaction to market forces?
TG: The intention had always been to build from what we had as a unified company and create points of differentiation wherever you possibly could, with mobility clearly being an area where we could employ some differentiation. What you saw was an out of the gate, highly promotional kind of approach. And what you subsequently saw earlier this year was [combining] unlimited data when you combine AT&T mobility on DirecTV. The third prong was the announcements on OTT. Underlying all of that is a video platform that will ultimately be delivery-agnostic — managed and unmanaged networks, WiFi or LTE, IP or satellite. The intent has always been, you get to a point where the platform is flexible and nimble and expands beyond the 26 million households we’re in today.
MCN:Millennials supposedly don’t watch TV, they watch shows on whatever device they happen to have nearby. Is that what you’re doing with the OTT service? Is it the first step in a series of products that consumers will use as their life situations change?
TG: Our OTT strategy is two-pronged. On one side, it’s a catch-all type of product. There are folks that are leaving the ecosystem that really still value the bundle, and the bundle has just gotten a bit out of reach. Our DirecTV Now product is intended to be a product that folks who are leaving the ecosystem, yet still value the premium content, can subscribe to rather easily. It’s pay TV as an app. They can subscribe rather quickly and cancel rather quickly. But we’re investing less into those consumers because we’re not rolling trucks or putting set-top boxes into their homes. On the other side of what we announced on OTT, which is DirecTV Preview and the mobile-specific products, it is trying to pull in some of those “cord nevers” that tend to be younger and present them with premium content from the more premium services. Over time, yeah, we do believe that at a certain life stage, cord-nevers will make a decision to buy more. And we’re in a unique position if we do this right to be able to establish a relationship with those customers.
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MCN:You have been migrating U-verse TV customers over to DirecTV. Once that is complete, will you still have a wire into the home? Will U-verse wireline broadband still be important, or do you see that eventually moving to fixed wireless?
TG: Fixed-line broadband is very, very important to us. We’ve committed as part of the conditions of the merger to build 12.5 million fiber households. There is a tremendous amount of investment that is traveling down the fixed-line broadband path. As far as fixed wireless, we are deploying some fixed wireless, largely in rural areas. As mobile networks evolve and we get into this IP era, there will be an opportunity to unify the broadband approach. We haven’t been overly specific as to what our plans are there. But to answer your question very directly, fixed line is very, very important. We’re putting a lot of fiber in the ground and we don’t intend to pull back at all.
MCN:So there will always be a line into the house?
TG: Yeah. How that line gets there is definitely evolving. It used to be twisted-pair copper that went through a central office and got distributed, then it became fiber to the neighborhood and now we’re at fiber into the home. There will be what I call a collision of wireless and wireline at some point. It’s hard to predict when [and] to what extent we’ll use it. We’re going to do whatever is more cost-efficient and delivers the best experience to the consumer.
SIDEBAR: Streaming Meemies
Beginning in the fourth quarter of this year, AT&T will make streaming video available in three separate packages for consumers:
DirecTV Now: On-demand and live programming from most of the networks available on DirecTV, plus premium and add-on options
DirecTV Mobile: Mobile-first experience for premium video and made-for-digital content for smartphones, regardless of wireless service provider
DirecTV Preview: Free, ad-supported service featuring some of the quality programming available on DirecTV, including the AT&T Audience Network and millennial-focused content from Otter Media
Source: AT&T
SIDEBAR: Sub-Traction
DirecTV net new-subscriber growth has been on the rise in the past few quarters, just as AT&T’s U-verse customer base has declined sharply. (In thousands)
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
DirecTV . . . . . . . . . . 60 . . . . . . . . (133) . . . . . . . . . 26 . . . . . . . . . 214 . . . . . . . . 328
AT&T U-Verse . . . . . 49 . . . . . . . . (23) . . . . . . . . . (92) . . . . . . . .(240) . . . . . . (382)
Source: Company reports
