AT&T Announces Pricing for New Streaming Services

In addition to DirecTV Now, AT&T’s new streaming video service, AT&T also has announced price points for two other services, FreeVIEW and Fullscreen, both of which can be used with no data plan usage for AT&T mobile service customers.

Fullscreen offers more than 1,500 hours of ad-free premium scripted and unscripted original series, TV shows and films licensed from studio partners.

Fullscreen can be used at no charge for one year, for all AT&T mobile plans including a messaging service, and without incurring data usage charges. Regular pricing after the introductory year is $5.99 a month.

Fullscreen can be used anytime, anywhere in the United States, at www.fullscreen.com, on iPhone, iPad, select Android Phones, Chromecast and Apple TV devices.

FreeVIEW also provides unique and exclusive content free of charge, including a sampling of on-demand content from AUDIENCE Network, Otter Media properties and other channels on DirecTV Now, using either the DirecTV Now app or at the web site, www.directvnow.com. Streaming of FreeVIEW does not incur data charges.

AT&T also announced pricing for DirecTV Now, including

• Live a Little – $35 / month (60+ channels)
• Just Right – $50 / month (80+ channels)
• Go Big – $60 / month (100+ channels)
• Gotta Have it – $70 / month (120+ channels)

Fans of HBO and Cinemax can add these channels for just $5 each per month in addition to your base programming package.

DirecTV Now will be available at launch through the following:

• Amazon Fire TV and Fire TV Stick
• Android mobile devices and tablets
• iPhone, iPad and Apple TV
• Chromecast (Android at launch; iOS in 2017)
• Google Cast-enabled LeEco ecotvs and VIZIO SmartCast Displays
• Internet Explorer, Chrome and Safari web browsers.

Support for Roku streaming players and Roku TV models, Amazon Fire tablets, and Smart TVs from Samsung and other leading brands will be added in 2017.

AT&T continues to argue that the primary audience for these services are about 20 million households that use the internet but do not buy linear TV services. That includes people who used to subscribe as well as those who never have subscribed to a linear TV service.

But that also means AT&T now competes with other services such as Sling and PlayStation Vue, for example. Some might argue the new services also will compete with Netflix, Amazon Prime and Hulu, to some extent.

The other issue is how much impact, if any, might eventually be felt by the linear video business, affecting both AT&T’s own DirecTV service and those offered by others such as Comcast and Charter Communications, even if the immediate expected customer base is “non-buyers of linear video service.”

Demand for Fixed Network Voice Lines is Lower than Many Think

Consumer demand for fixed network voice connections arguably is substantially lower than one might conclude from units sold to households. In some markets, purchase of a voice line is required if a customer wants internet access (United Kingdom buyers of retail landline service from BT or any BT wholesale customers, for example).

In other markets, such as the United States, voice typically is sold in a bundle that offers substantial discounts for buying three bundled services, making purchase of a voice line a feature of service often primarily purchased for internet access and video entertainment.

Also, global development experts believe mobile and internet are, in any event, the key services to monitor, not fixed line voice.

The key observation is that many consumers must buy a fixed network voice service in order to buy internet. The question is how demand would be affected if that requirement were not in place.

One survey found that between 25 percent and 40 percent of U.K. consumers “do not know their own phone number.” Also, more than 50 percent of U.K. survey respondents report they ‘rarely’ or ‘never’ use their landline phone to make personal calls, Relish, a wireless internet access provider, says.  

Perhaps 36 percent of respondents only use their landline voice line once a month or less, Relish has found.

If only half of those respondents--if given a chance--would abandon voice lines, then take rates for landline voice might drop between 12.5 percent and 25 percent. But it might also be the case that up to half of present buyers seen very little utility in their landline voice connections, suggesting that as much as half of all present demand is artificially inflated.

There are analogous trends even in the mobile business. Many leading U.S. mobile plans, for example, offer unlimited domestic calling and text messaging for a lowish flat fee, with revenue driven primarily by purchases of mobile data. One might infer from those practices that the “value” of a mobile voice or messaging capability is relatively low, compared to access to mobile data.

That is not to say the voice and messaging features are unimportant; only that they are commodity features. Few consumers likely would buy a mobile service that did not include voice and messaging capabilities, but equally few are likely to prize those capabilities. The analogy is an automobile without tires. Tires are necessary, but few consumers think about them when buying a car.

Linear Dollars for On-Demand Pennies?

One enduring observation made by content business executives about the gross revenue or profit margin impact of digital content is that companies exchange analog dollars for digital pennies. That might also be true of the switch from linear to on-demand video entertainment.

Gross revenue for AT&T’s new DirecTV Now streaming service, for example, might generate an average of $118 a month. DirecTV Now will generate just $35 a month in subscription fees. So DirecTV Now represents gross revenue per account just 25 percent the size of a linear subscription, on average.

Profit margins suffer even more. Gross margin for the linear product might be as high as 45 percent, while gross margin for DirecTV Now might be as low as four percent, some predict.

Others think the profit margin will be even slimmer, as the “cost of goods”represents as much as 97 percent of revenue. Craig Moffett, MoffettNathanson equity analyst, estimates the  the cost of the channels expected to be included in DirecTV Now is likely around $34, which would leave just $1 a month before other expenses including overhead and marketing.

A reasonable observer might wonder why AT&T would offer such a service. There are several answers. AT&T is not alone in believing that the biggest opportunity to capture leadership in the on-demand video entertainment business is to focus on mobile video rather than the “direct to TV” model. So DirecTV Now, even if a “loss leader” at the moment, offers a chance to grab leadership of the business most expect will displace linear TV over time.

Also, subscription TV (linear or on-demand) is a clear “app,” offering a chance to escape the “commodity dumb pipe internet access” role. Simple internet access does not intrinsically drive incremental revenue for the access provider. Voice, messaging, video and other services, in contrast, boost revenue. And that will be a primary objective and necessity for all tier-one service providers, as legacy services approach “near-zero” pricing levels.

In that sense, entertainment video is among the likeliest candidates to drive significant application revenues, in addition to the internet access function. Also, content services--at least in principle--are more “sticky” than other services such as messaging and voice, allowing more chance for differentiation and loyalty.

To be sure, AT&T maintains the service will be aimed at households and customers who buy internet access, but not a subscription video service. Apparently, current DirecTV linear subscription customers will not be able to buy the DirecTV Now service. But at least some additional consumers are going to view the new offer as a viable choice.

That will be most true for consumers who might otherwise consider SlingTV or Hulu, less so for consumers of Netflix or Amazon Prime, both of which arguably compete more directly with HBO. DirecTV Now (as is SlingTV) is a better choice for consumers who want a broad selection of major network linear content.

DirecTV Will be a Loss Leader

DirecTV Now will offer customers the ability to stream more than 100 channels of content on any device from a smartphone to a 55 inch TV starting at $35 a month with, no annual contract, no credit check, no installation charges, no set top box, and, for AT&T mobile customers, no data charges.

Margins will be super thin to non-existent, as the “cost of goods”represents as much as 97 percent of revenue. Craig Moffett, MoffettNathanson equity analyst, estimates the  the cost of the channels expected to be included in DirecTV Now is likely around $34, which would leave just $1 a month before other expenses including overhead and marketing.

Under most circumstances, that sort of underlying cost, and retail profit margin, would be characteristic of a “loss leader.” And that is among the strategic principles AT&T likely is following: grab market share in a big new content distribution market. AT&T already is the leading U.S. provider of linear video entertainment, so assuming a “winner takes all” dynamic comes to characterize streaming video markets, AT&T would be compelled to aggressively take market share from the existing early leaders.

That, by the way, is characteristic of how big tier-one telcos, including AT&T, have in the past come to lead other markets. AT&T was not first to offer dial-up internet access or digital subscriber line services. Those markets were pioneered by independent third parties. AT&T was not an early leader in linear video services or mobile services (arguably).

That is not the only way AT&T has entered new markets such as connected cars, where it arguably is an early leader in the connectivity services segment of the market, but is an established growth strategy that might be called “let others pioneer; we will scale the business.”

DirecTV Now, the new AT&T streaming video service, is interesting and important for several reasons. The move illustrates a classic method by which AT&T and other tier-one service providers enter and lead big new markets.

The regulatory challenges posed by use of a single access platform (IP and internet) to support multiple business models bridging formerly-distinct industries also are key issues. In other words, as the single physical network now supports multiple logical services historically regulated in distinct and highly-disparate ways--from common carrier to unregulated content--how to regulate formerly-distinct industries becomes an issue.

Entry into the retail streaming video business also illustrates the broader strategic challenges faced by access providers, and the the growth model.

Finally, DirecTV Now also encapsulates the principle that “near-zero pricing” of both access and carrier services remains a key underlying reality--perhaps “the” underlying reality--faced by the access services industry.

Perhaps shockingly, every carrier service is facing a long-term trend of retail pricing that moves closer to zero. That has been true of voice, messaging, internet access and entertainment video, not to mention wholesale services such as wide area network transport.

Some two decades ago, it was possible to hear top executives in the internet and computing industries argue that “bandwidth wants to be free,” with retorts that “software wants to be free.” As it turns out, both assertions captured the general movement of prices across access and software businesses.

With the caveat that “nothing is really free,” advertising-supported software is a dominant business model. Wi-Fi is the best example of “no incremental cost” internet access. But all “for fee” communications apps and services are trending ever-lower in absolute cost as well.

Pricing for DirecTV Now is but the latest example.

Old Regulatory Silos Do Not Work

Mobile video traffic is forecast to grow by around 50 percent annually through 2022 to account for nearly 75 percent of all mobile data traffic by that point.

Social networking is expected to grow by 39 percent annually over the next six years. However, its relative share of traffic will decline from 15 percent in 2016 to around 10 percent in 2022. Other application categories have annual growth rates ranging from 19 to 34 percent, so are shrinking as a proportion of overall traffic.

To be sure, not all the video is driven by subscription video. Embedded video in social media and web pages continues to grow. But subscription video will be the single biggest eventual driver of bandwidth consumption, as watching an hour of Netflix TV or movies might consume between 1 GB and 3 GB per hour.

The growing dominance of video traffic on internet access networks of all types raises some questions beyond the sheer amount of data to be carried.

Some three decades ago, it would have been common to hear observers talking about convergence, whereby all media types--from voice to messaging; print content to video and music--would be conveyed to consumers using a single, integrated access platform. We do not use the term much, anymore, because it simply is the way communications and content are used or consumed using internet mechanisms.

In 1983, Professor Ithiel de Sola Pool said:

“Separate nations will have separate networks, as they do now, but these will interconnect. Within nations, the satellite carriers, microwave carriers, and local carriers may be—and in the United States almost certainly will be—in the hands of separate organizations, but they will interconnect. So even the basic physical network will be a network of networks. And on top of the physical networks will be a pyramid of service networks. Through them will be published or delivered to the public a variety of things: movies, music, money, education, news, meetings, scientific data, manuscripts, petitions, and editorials.”

De Sola Pool correctly identified several fundamental features of the coming “next generation network:” that it would separate logical and physical networking, becoming a network of networks; and that all media types would be accessible from one physical platform. That might seem unremarkable. That is not the case.

Recall that the IBM PC had been introduced in 1981 and that the Ethernet networking standard was released in 1983. In 1984, home computer ownership might have been about 10 percent and about 1.4 percent used the internet--using dial-up modems. There was no World Wide Web. In other words, the shape of the world to come was anything but clear.

More important than the identification of the technology developments, de Sola Pool grasped the implications for regulation.

“In the coming era, the industries of print and the industries of telecommunications will no longer be kept apart by a fundamental difference in their technologies.”

Keep in mind the traditional regulation of various media types. Print content is essentially unregulated. Cable TV is lightly regulated. Broadcast TV and radio are more regulated. Voice and messaging are heavily regulated using a utility model.

All that becomes problematic in an era where all those media types can be--and are--internet or IP apps, and when apps mix and mingle all those media types, and when any type of company can compete in another segment’s business. In that scenario, old regulatory frameworks simply do not work very effectively. Some contestants face constraints their competitors do not.

Telcos have mandatory wholesale obligations and sometimes price controls; cable TV companies do not. Some app providers have universal service obligations; others do not. Some app and access suppliers are constrained where it comes to retail pricing and packaging (zero rating), while others are not.

Some apps and services are covered by content rules, others are not.

The point is that the coming shift to on-demand content delivery is going to stress regulatory models and notions of fairness. Traditionally, “media” firms are free of content and other rules related to their business models. Cable TV firms essentially are free to set their own prices and packaging policies. Some telcos remain highly or substantially regulated in that regard.

But nearly all larger contestants in internet content markets now are “media” companies to some significant extent, and moving more in that direction.

That is going to keep exposing irrationalities in the legacy regulatory structure. The internet is used by “everything.” But not everything using the internet and IP actually has been historically regulated (or not regulated) as a “data” app.

There are multiple frameworks to resolve.

source: Ericsson

Include DOCSIS in Gigabit Plans?

The European Commission, pushing a goal of gigabit internet access by 2025, tends to focus exclusively on fiber to home as the mechanism.

Not surprisingly, Liberty Global argues a “range of technologies” will be required, and should be backed.  

So argues Communications Chambers, a communications and media consultancy firm, which also argues a broad range of technologies, including fiber-to-the-premises (FTTP), DOCSIS, G.fast and high-speed cellular access (particularly 5G) will be required to deliver a minimum 100 Mbps to all households and at least 1 Gbps to users such as schools and large businesses.

Liberty Global has an obvious stake in the outcome, as well as the policies intended to further the goal.

Not surprisingly, Liberty Global argues that hybrid fiber coax DOCSIS networks could deliver gigabit broadband by 2017 and at a lower cost than using FTTP, as obviously has been the case in the United States, the United Kingdom and some other markets.

In part, the argument seeks to dampen financial support that could be given to rivals, or perhaps, more optimistically, lead to funds being made available to support HFC upgrades, not just fiber to premises deployments or 5G.

Order of Magnitude Increase in Mobile Data Between 2016 and 2022

By the end of 2022  there will be 8.9 billion mobile subscriptions in use, Ericsson predicts.  Mobile broadband subscriptions will reach eight billion, accounting for 90 percent of all mobile subscriptions.

The number of unique mobile subscribers is estimated to reach 6.1 billion by the end of 2022.

Monthly data traffic per smartphone continues to increase in all regions. North America has the highest usage, with 5.1 GB per month per active smartphone expected by the end of 2016. In 2022, North America will still be the region with the highest monthly usage (25 GB), but other regions will be catching up.

That represents an increase of almost 40 percent since the end of 2015.

Total mobile data traffic is expected to rise at a compound annual growth rate (CAGR) of around 45 percent In the future. Between 2016 and 2022, smartphone traffic is expected to increase by 10 times and total mobile traffic for all devices by eight times. By the end of this period, more than 90 percent of mobile data traffic will come from smartphones.

source: Ericsson

source: Ericsson