AT&T chief Randall Stephenson has big plans to build “wireless centric” video services as he approaches the closing of his $85 billion deal to buy Time Warner, he told investors today.
The telco will test later this year — and roll out next year — an internet-based, direct-to-the home video service built off its DirecTV Now offering, he said at the Goldman Sachs Annual Communacopia Conference.
The company also announced that, beginning this Friday, it will offer HBO for free to wireless customers who have AT&T’s $60 a month Unlimited Choice plan. For an additional $10 they can live stream 60 channels, and access 25,000 on-demand titles, with DirecTV Now’s “Live a Little” video package.
“This is how we move downmarket into some of the less affluent demographics of the marketplace,” the CEO says. “There’s more to come. After we close the Time Warner deal, it’s going to be very interesting for that end of the market.”
That message might appeal to antitrust officials now weighing whether AT&T’s acquisition of Time Warner could reduce competition, and raise prices.
But the AT&T chief says it’s largely driven by the company’s recognition that pay TV has become too expensive.
“Traditional linear TV is in decline,” Stephenson told the gathering. With the conventional pay TV bundle costing $100 or more each month, “it’s a price issue. …People are opting out of the cable bundle” — especially young millennials.
As a result, he says, AT&T will be asking “can we take out content that the customer doesn’t watch?””
Another strategy is to cut its own costs, which is where the wireless initiatives — including the plans to go wireless to the home — come in.
“That is going to be the platform for how we deliver video in the future,” the CEO says. “It will not require a satellite dish on the roof” or even a big set top box.
Still, it will enable AT&T to offer “a full spectrum of services” including 4K, Ultra-HD video.
Since it’s software-based “you suddenly take customer acquisition costs of somebody having traditional video service in their home, you take that installation cost down dramatically” — potentially enabling the company to lower consumer costs for video programming “without destroying [profit] margins” — Stephenson says.
He adds that “we have to work [customer costs] down over time.”
That might include harnessing the customer data that AT&T collects at DirecTV and elsewhere to improve its ability to sell high-priced ads that target specific consumers.
“We have placed a high value on this data, and the ability to monetize that data through additional advertising revenue streams that will allow us to be very aggressive in how we price our subscription services in the marketplace,” he says.
He also talked up the company’s ability to do that without running spots next to potentially controversial content — a growing complaint for buyers on internet platforms including YouTube.
“You can control where your brand shows up,” Stephenson says. “It won’t appear next to content that you find objectionable.”
DirecTV sells about 200 billion impressions a year, and Time Warner has an additional 750 billion — mostly at Turner.
Although DirecTV is still in the early stage of selling addressable ads, it’s already “selling at a factor of two to three times what a company like Time Warner is able to get….It’s a very sizable opportunity and something we’re going after very aggressively.”
Stephenson says he still expects the Time Warner deal to close by year end. It will be run as a “separate and independent company,” he adds.
“I know very little about running a media company,” he said.
But by this time next year, Time Warner execs — who he called “the best in the industry” — may begin to use AT&T’s data to tailor their creative decisions.
“I don’t think data replaces creativity,” he says. “I don’t think Steven Spielberg gets replaced by big data. I do think an executive in the media industry has an opportunity to think differently and use the data to influence their investment decisions: How much are you willing to pay for certain content? How much are you willing to invest to create certain content? …It’s going to be interesting to watch how they take advantage of this.”
He’s also upbeat about AT&T’s ability to cross-promote Time Warner content in its 5,000 “retail points of presence” across the country.
“Millions of door swings every single month,” he notes. “Can you envision — you walk into an AT&T store and it is Justice League, it is Wonder Woman, it is season 7 of Game of Thrones. You pick it….You’re going to see a lot of these.”
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