AT&T CEO: Consumers Don't Want to Pay "Multiple Times for the Same Content"

Randall Stephenson - Getty - S 2016
Getty Images

Randall Stephenson - Getty - S 2016

Randall Stephenson talked Wednesday at a Goldman Sachs conference in New York about the "very aggressive" price plans for upcoming streaming service DirecTV Now and cannibalization risk.

AT&T chairman and CEO Randall Stephenson on Wednesday told an investor conference that the company's DirecTV Now OTT service, set to launch in the fourth quarter, will come with a "very, very aggressive" consumer price tag but low-cost subscriber acquisition and will help the telecom giant and content companies solve key consumer frustrations in the digital age.

Speaking at the Goldman Sachs Communacopia Conference in New York in a session that was webcast, the exec said the new service will first focus on the about 20 million homes without pay TV subscriptions in the U.S. and roll out in the next "couple" of months, but he didn't disclose exact price points and full timing details. Stephenson on Wednesday reiterated that DirecTV Now will have 100-plus channels, making it less of a "skinny" bundle than other streaming services, such as Dish Network's Sling TV.

“The consumer has gotten to a place where they are not terribly happy about paying multiple times for the same content," Stephenson said in explaining one key value proposition behind the service and the company's broader portfolio of services. "They don’t want to buy the DirecTV subscription and then have to go pay extra if they want to see the same [content] on a mobile device.”

He added: “They don’t want to buy an over-the-top subscription and have to pay for it again if they want to stream it to a TV. And if they forget to DVR Silicon Valley, the idea that I now have to go to Apple or Hulu or wherever … and pay for it again … we have to solve that problem.”

With AT&T having acquired satellite TV giant DirecTV and various technology and other companies, Stephenson said: “The assets that we have assembled we think get us there.”

AT&T has struck many big content deals for the service as of late, with CBS Corp. and 21st Century Fox among the major holdouts. “We are 90 percent there on content agreements,” the CEO told the conference, calling the deals "win-win" agreements. "We have “a couple of key ones that we are still working on, but we are largely done.”

“Most of the programmers are still trying to figure out the new model as well," Stephenson said about the company's relationship with Hollywood companies. One of the key variables AT&T is pitching as a benefit is viewership data. “We have, I believe, the best viewership data in the industry," anonymous data, which can help instruct how to think about new advertising models and developing programming, he said.

Given the cost of content, Stephenson was asked how profitable the planned service can be if it comes at aggressive price points. He replied that it would have "thinner," but not "thin" margins. “This is a very unique cost structure” that is “completely different” from traditional services, he said. Customers download an app, subscribe purely digitally and pick content digitally, meaning "this is a very, very low-cost customer acquisition product," Stephenson explained. He spoke of a "nominal” cost to provision it.

The company's position as the biggest pay TV provider in the U.S. gave it extra leverage in programming deals, he said. “We had to acquire content rights, and being the largest-scale TV provider in the U.S. gave us a lot of opportunity to get a best-in-class cost structure," Stephenson told the conference.

Will DirecTV Now cannibalize existing products? “I do think, yeah, that there is risk of it cannibalizing the existing product,” he said. “That though is a good sign,” he added, as it shows that you have found “something that the market really, really wants.” Stephenson said “the worst thing” is not launching products that are disruptive and threaten legacy products, arguing that 99 out of 100 times those don’t go anywhere. “We have demonstrated a real competence in managing these type of market and technology transitions,” he added.

In 2017, "this is going to be a big driver of video for us," the AT&T boss told the Goldman conference, without forecasting subscriber targets. But he said that the company believes a “significant” number of those 20 million target households would like a service with 100-plus channels at an attractive price. Launching with one or two streams per home can help manage cannibalization, he added.

The company has unveiled the fourth-quarter launch of three streaming, or OTT, services. DirecTV Now will be the broadest offer and look similar to DirecTV. AT&T executives have expressed confidence that DirecTV Now will be more popular than Sling TV and others offering "skinny bundles" of just a few dozen channels.

The other two planned streaming services have so far been called DirecTV Mobile, targeting people who want to view TV on their smartphones, and DirecTV Preview, focused on millennials and including content from Otter Media, AT&T's joint venture with Peter Chernin's Chernin Group.

Ahead of the launches, AT&T has been on a carriage-deal renewal spree, unveiling new agreements with the likes of HBO, Turner, NBCUniversal and Discovery Communications.

AT&T recently reported that it ended the second quarter with 25.3 million video subscribers, down 49,000 year-over-year as satellite TV giant DirecTV added 342,000 new users, but the company's U-verse service lost 391,000 subscribers.

The company has said it will grow pay TV subs for the full year. AT&T's acquisition of DirecTV closed in July 2015, and the company has since added nearly 1 million U.S. satellite TV customers.