DirecTV Now Highlights the Challenges of US TV

On Monday afternoon, AT&T finally announced its DirecTV Now service. It has been talking about this in detail since earlier this spring and for even longer in a more general sense. The service launches on Wednesday and marks the latest entrant in the online Pay-TV replacement market though, of course, it hasn’t been marketed that way. But the service, its structure and, more importantly, its limitations, highlight the challenges associated with operating in the US pay TV market.

What consumers want is straightforward

When it comes to TV, what consumers want is straightforward: they want to watch what they want, when they want, where they want, preferably without ads, and they want to pay as little for it as possible. The last twenty years have seen many attempts to give us these things, starting with boxes (VCRs and DVRs, SlingBox and so on) and then moving on to service structure and cloud offerings to achieve the same objectives. Netflix and HBO have each, in their own way, demonstrated the power of “no ads” while a variety of online services have shown how compelling an entirely on-demand world can be. But we still haven’t seen all these elements combined into a single package. Every service offers only a subset – great interface with no ads but a limited amount of content; or tons of content, but with ads and a crummy interface. Every new service to launch holds out the hope someone will finally crack all this but they always fall short in one or more ways.

What’s not there is as important as what is

Many of the headlines in the weeks leading up to the launch focused on two numbers – 100 channels and $35. However, it’s now clear these numbers don’t really go together, at least in the long term. AT&T’s $35 package has “60+” channels, not 100. The 100-channel package will cost $60 over the long term (though there will be a promotion offering the $35/100 channel combination at launch for a limited time). One of the most frustrating things about following the event was AT&T didn’t announce the exact channels – the focus was all on the number of channels in each package. I suspect that was deliberate: it’s what consumers are used to and it stops people complaining one or another channel isn’t included.

Yet that’s exactly where the focus has inevitably landed as details on the contents of the various packages has trickled out and as more of the asterisks on the service have become clear. So far, we know of the following limitations on the service as a whole:

  • CBS and Showtime are entirely absent for now
  • The service won’t work on Roku devices at the outset
  • Subscribers won’t be able to watch NFL games on their phones
  • There will be no DVR functionality
  • Local ABC, Fox, and NBC stations will only be available where those companies own and operate the local stations.

There’s also still the age-old issue of forced bundling – yes, there are several tiers here but it’s still far from a la carte. In short, though the promise is some version of the “watch what you want, when you want, where you want” story, there will indeed be limitations on what, where, and when you can watch. And because there’s no DVR, you won’t be able to skip the ads. Much of this, of course, comes down to two things: the complicated structure of the US market and AT&T’s mixed incentives as it launches this new product.

The impact on the market

The big thing DirecTV Now has going for it is it comes from one of the big names already in the pay TV business, under its own brand, that will also be tied to the AT&T brand. Yes, DISH has launched its Sling TV service, but that operates under a separate, unfamiliar, brand. Sony’s Playstation Vue service has been limited until very recently to Sony’s own devices. Hulu, YouTube, Amazon, and others are all supposedly working on their own offerings here too, but none have launched yet. I suspect all that means DirecTV Now will do very well in the market, especially with its promotional pricing and its tie-in with Apple TV and Amazon Fire TV Stick hardware. Customers will be able to buy the service and the hardware needed to consume it at very competitive pricing bundles and they’ll be able to do it in AT&T stores.

The zero-rating of DirecTV Now content on the AT&T network will also likely help a little, though with T-Mobile offering unlimited throttled video and Sprint offering unlimited data services, that value proposition probably isn’t as strong as it could be. We’ve also yet to see any specifics around the bundling of AT&T wireless service with DirecTV Now. Overall, though, this service is likely to do well, especially compared to the existing virtual MVPDs in the market, though I suspect there may well be some customer backlash as some of the limitations become clear. The good news is those customers will be able to cancel anytime and won’t be locked in as they would traditionally have been to a pay TV provider.

From a content provider perspective, despite optimism in some quarters about finding new pay TV customers, I suspect the real impact will be a further shift of big traditional bundles from the existing providers towards these skinnier bundles, as people finally sense a way out of paying far too much for channels they don’t use. The most telling statistic in the industry is always that the average customer gets 200 channels in their package, but only watches about 20. People are crying out for smaller packages and now, they’re finally starting to get them. But they’re also still crying out for that vision of the content they want on their terms and this new offering from AT&T won’t slake that thirst just yet.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

Leave a Reply

Your email address will not be published. Required fields are marked *