Category: Business

“We’ve launched our last satellite,” John Donovan, CEO of AT&T Communications, said during a presentation to analysts.

This statement signals an expected shift in AT&T’s broadcasting strategy away from traditional cable and satellite delivery. Over the last 5 years, Over The Top live video streaming services, like AT&T’s DirecTV Now and Dish Network’s Sling TV, have picked up a growing segment of the viewing market that has been abandoning direct broadcast. According to a March, 2018, report by the Video Advertising Bureau, streaming-only audiences, which account for OTT viewers and streaming on-demand providers like Hulu and Netflix, tripled since 2013, when they began tracking the cord-cutting trend, to 14.1 million homes. While this still accounts for only 11% of viewing households, and a small segment of the overall industry landscape, where viewers subscribe to a combination of traditional and streaming services, the precipitous rise of those leaving cable and DBS has raised concerns for broadcasters and advertisers who have relied on this delivery model for over 7 decades.

For its part, AT&T’s acquisition of DirecTV had less to do with gaining dominance in the DBS market and more to do with its push to dominate both broadcasting content and distribution. According to Chris Wagner, managing partner at the consulting firm OTT Advisors, the real prize in the deal was assets like DirecTV’s NFL Sunday Ticket. However it is questionable whether DirecTV’s programming assets are worth the investment, given the falling numbers of subscribers, which create challenges for AT&T in its effort to recoup its investment. As pointed out in the blog Awful Announcing, the $1.5 billion per year contract AT&T has with the NFL requires a subscription pool that can sustain the $300+/season price tag through the end of 2022. While DirecTV has not officially released its subscriber numbers for NFL Sunday Ticket, AA reported a rumored 2 million subscribers. Forbes reported a similar number at the time the current contract was signed in 2014, raising questions about the value of this service for revenue or for retention.

While this is just one example, it points to a serious vulnerability in DBS’s programming assets. In the case of DirecTV’s NFL offerings, which have given it a market advantage to its rival Dish Network, AT&T faces competition from, of all sources, its partner, the NFL. The NFL now offers a competitive package directly to viewers for $49.99 per season with NFL Game Pass, threatening to cannibalize its NFL Sunday Ticket deal with DirecTV. However, AT&T seems to have seen the handwriting on the wall with such content deals, forcing a hard bargain with DirecTV’s sole competitor in the DBS market, Dish Network. The current contract impasse, resulted in the removal of HBO and Cinemax channels from Dish and its OTT service Sling TV. The stage for this was set not only in last summer’s contentious $47 billion AT&T-Time Warner merger, but in the meteoric rise of HBO’s own OTT service, HBO Now. Launching in December, 2015 with an estimated 800 thousand subscribers, by February, 2018, HBO Now reached the 5 million mark. While a small fraction of HBO’s 149 million subscribers worldwide, the rapid rise of its OTT service has given AT&T-Time Warner as view of what’s possible in the emerging cord-cutting viewership market.

The shift in the broadcasting model has given traditional providers reason to pause. “In 2008, about 95 percent of total entertainment consumption was coming through linear broadcast constructs,” said John Stankey, CEO of AT&T’s Time Warner Media division. “Today, it’s about 55 percent. … It is really important that we position ourselves from a technical perspective to accommodate that.”