The launch of AT&T TV, the companies long proposed successor to its premium TV products, occurred on March 2, 2020. The new service combines the content offerings from its premium live TV products with the flexibility of internet delivered video streaming. AT&T TV is the culmination of the company’s strategy which began after the acquisition of DirecTV. The company has, on several occasions, announced its intention to make the move to all IP delivery.

The launch of AT&T TV, the companies long proposed successor to its premium TV products, occurred on March 2, 2020. The new service combines the content offerings from its premium live TV products with the flexibility of internet delivered video streaming. AT&T TV is the culmination of the company’s strategy which began after the acquisition of DirecTV. The company has, on several occasions, announced its intention to make the move to all IP delivery.

The new service sits alongside the company’s existing products: DirecTV, U-verse, and AT&T TV Now. The difference between AT&T TV, DirecTV and U-verse is in delivery; AT&T TV uses the open internet as its transmission medium rather than a dedicated network infrastructure. The difference between AT&T TV and AT&T TV Now is subtler. The new product, AT&T TV, is more in line with the company’s premium offerings DirecTV and U-verse, while AT&T TV Now, previously known as DirecTV Now, is positioned as a “lite package.” It is important to note that the company will likely drop or significantly reduce advertising expenditures for AT&T TV Now, in favor of AT&T TV.

The new service, AT&T TV, includes macro pay TV bundles which should be very familiar to existing pay TV subscribers. At the time of launch there were 3 bundles available for subscription: Entertainment, Choice and Xtra, with first year monthly rates of $49.99, $54.99 $64.99 per month respectively. Subscription to AT&T TV is not limited to new customers at the discounted rate. New service requires a 2-year commitment with the second year effectively doubling the first-year monthly rate; early termination fees are $15 per month for every month left in contract.

AT&T has made a number of innovations to its’ TV services in recent years. When the company launched U-verse TV it launched with IP driven set-top boxes that could be updated any time AT&T decided to push an upgrade through its proprietary network infrastructure. Moving forward to the launch of AT&T TV, the company is realizing its vision to deliver the first full featured premium pay TV service using all-IP delivery over the open internet.

The new service is being provided through Android based TV set-top boxes, with the first box provided for free. Each subsequent box costs $120 and is billed at $10 per month until the set-top box is paid in full in 12 months. If a customer drops the service after the boxes are paid in full, they can keep the boxes, which should still support any additional apps. The company highlights the fact that because they run on the Android operating system that they can run all apps from Google Play through the TV. iOS and Android smartphone apps are also available to access the service through tablets and smartphones, while Apple TV and Amazon Fire devices also support the service for televisions.  

AT&T has introduced voice control using Google Assistant to the service. The remote control therefore allows users to control their TV and downloaded apps with Google Assistant. Other notable features are 500 GB of cloud storage, 3 concurrent streams (inside or outside the home) and simple self-installation. While there is a significant amount of sports content, noticeably missing is NFL Sunday Ticket, which AT&T opted to keep exclusively on DirecTV. It also notably leaves the option to stream in UHD exclusively to DirecTV; no UHD content is available on AT&T TV.

Our analysis

The launch of AT&T TV is the culmination of a product strategy years in the making as bandwidth and network capacity has increased while the cost per bit delivered fell. The company is banking that the savings associated with removing the need for a proprietary network will be enough to make a pay TV service model profitable again. Since the company purchased DirecTV in Q3 2015 it has shed 3.4 million subscribers (19.6 million in Q3 2015 to 16.2 million in Q4 2019). The declines in “Premium TV” subscribers (DirecTV + U-verse) as they faced new online competitors, and massive debt (thanks to the purchases of DirecTV and Time Warner), have forced the company to innovate.

DirecTV Now was a valiant first effort, it enjoyed initial success, peaking in Q3 2018 with 1.9 million subscribers. DirecTV Now, which was later renamed to AT&T TV Now, was the third virtual pay TV operator or vMVPD to the US market after Sling TV and Playstation Vue. Because the service was positioned as a skinny bundle, meaning it is cheaper than traditional pay TV services and has no contracts, the service was very successful. The addition of 1.9 million subscribers after 8 quarters in business (the service launched Q4 2016), beat U-verse TV’s launch which added 1.3 million from Q2 2007 to Q2 2009.

Recent declines in AT&T TV Now, previously DirecTV Now, are alarming for a couple of reasons. First, vMVPD skinny bundles have long been touted as the savior of the US pay TV business, however they have failed to grow with the pace of traditional cord cutting. Second, coming off promotion, or in other words, dramatically raising prices, is a recipe for subscriber loss. Skinny bundle providers operate on much smaller margins than traditional pay TV and are feeling the squeeze; AT&T TV Now significantly negative margins on subscriber revenues and carriage fees in Q4 2019 (see the Pay TV Lite Packages Report - US – 2019).

AT&T TV is drawing many similarities with the launch of AT&T TV Now, with a few notable differences. First, deep discounts at the launch of the service will likely attract significant numbers of subscribers for AT&T TV like they did for AT&T TV Now. Second, this will be a great time to be a promotion hopper, early termination fees are more reasonable compared with standard pay TV 2-year contracts. $15 per month of unfinished contract services is significantly lower than the large increase in cost for the second year of service.

While the company has focused on high-value subscribers, ARPU has been creeping up for U-verse TV ($129 per month in 2019) and DirecTV ($116 per month in 2019). In contrast, AT&T TV Now’s Q4 2019 monthly ARPU was $58.81, on the higher end of the VMVPD segment. Recent losses for the service are attributable to subscribers coming off promotion as well as raising prices for new customers to significantly higher than other vMVPD competitors.

The launch of AT&T TV has generated a similar buzz in the press, like when Comcast launched the X1 platform. Like X1, AT&T has had app assisted voice search via the DirecTV app on a customers’ phone,  since 2013. The integration of voice search, control, and interoperability bring the user experience on par with other major pay TV operators like Comcast (X1) and Dish (Hopper).