Will AT&T Kill Netflix? No? How About DISH Network, Then?

AT&T and Dish Network are bringing brand-new online TV services to the table. Should Netflix worry about two well-heeled new competitors?

Apr 24, 2014 at 6:00PM

DISH Network (NASDAQ:DISH) and AT&T (NYSE:T) are whipping up a couple of brand-new online TV services. American consumers are on the way to getting full-fledged broadcast and cable TV goodness delivered over the Internet. Should Netflix (NASDAQ:NFLX) investors worry about this new trend?

Let's look at what the new services might actually deliver to consumers -- and how they would measure up against Netflix.

Netflix's house is under attack. How effective will the new rivals be? Source: Netflix.

The dark horse
The AT&T venture starts off with a $500 million investment and a partnership with media development veteran Peter Chernin's Chernin Group. This one looks like a pure video-on-demand service, putting films and TV show episodes on an a la carte menu for easy consumption. The content won't be tied to time schedules, and the experience should be similar to having a massive DVR at your service -- without the hassle of actually recording the stuff you want to see later.

It's not clear exactly what that content will be, and the companies haven't explained how subscribers will pay for their entertainment. This could be an ad-free subscription service like Netflix, a wholly or partially ad-supported subscription like Hulu (which Chernin played an important role in starting, years ago), or just another pay-per-view service that mimics your cable box's on-demand experience in a more portable format.

Until we know these details, it's hard to say how this service will affect Netflix. But it's safe to say that anything with baked-in advertising will fall short of the clean Netflix experience, and thus cater to a very different demographic. As for pay-per-view, that market is also very separate and massively saturated.

Wake me up if AT&T and Chernin start talking about an ad-free subscription model.

The unique snowflake
The DISH Network service looks like a completely different animal. According to Bloomberg and its anonymous insider sources, DISH is looking to deliver a live TV stream over the Internet. We're talking about the classic TV networks and cable channels streaming their content onto an online platform, which isn't tied to a cable or satellite box in your living room, but can be enjoyed on broadband-connected computers, tablets, and smartphones anywhere.

DISH has already signed an agreement with Walt Disney, adding Disney staples ABC, the Disney Channel, and ESPN to the mix. The company is talking to all the major broadcast networks, and could put together an impressive package before a launch slated for late summer.

Unlike Netflix and the proposed AT&T offering, DISH seems to shoot for a traditional TV schedule rather than allowing you to pick your shows on demand. This would be like carrying a cable box in your pocket, feeding live TV content into your tablet or phone.

This will have to be a subscription-based service, and should come with all the advertising you'd expect from a regular cable TV service. DISH will be able to deliver content that no other online service can match, including high-budget maven Netflix, or fresh-content hawker Hulu. There's nothing quite like live TV if you're looking for news and sports, after all. And even Hulu's next-day delivery can't stand up to watching the latest sitcoms and dramas absolutely live.


The dime-sized antennas may or may not help Aereo avoid paying license fees to broadcasters. Aren't they cute? Source: Aereo.

If anything, this is a spiritual sibling to online TV service Aereo, which is currently fighting for its life in the Supreme Court.

The difference is, Aereo rebroadcasts TV content sucked down from live on-air broadcasts, using one set of the tiniest rabbit-ear antennas you've ever seen for each subscriber. Aereo says that it's no different from providing a really long and flexible coaxial cable from the antenna to each subscriber, and that it shouldn't have to pay broadcasters for accessing the free, over-the-air content.

As you've seen, DISH is actively talking up content deals with each broadcaster, and hopes to deliver an Aereo-style service without all the legal headaches. Plus, DISH is adding in cable TV channels that Aereo can't even pretend to have the rights to retransmit.

This one's very interesting to cord-cutters with bad over-the-air reception. But even though it's a pure Internet-delivered subscription, DISH will deliver a very different content library than Netflix. It's apples and oranges -- live TV can do things Netflix wouldn't dream of, but the DISH service can't match the Netflix ultra-convenient experience, either.

As Netflix CEO Reed Hastings said many times in Monday's earnings call, this is not a zero-sum game. It's easy to see how pairing Netflix (or one of its very few direct competitors) with something like Aereo, or this DISH-backed service, will make for a richer entertainment experience. There will be plenty of overlap between Netflix and DISH Online -- or whatever it'll be called -- subscribers.

What do these newfangled services mean?
As a shareholder, I'm not nervous about either one of these online TV services cutting into Netflix's revenue stream. In fact, adding more options to a currently thin field of Internet-based entertainment options can only legitimize the cord-cutting phenomenon even further. As a regular consumer, I'm pretty excited to see these services coming out of the woodwork.

Neither AT&T nor DISH is likely to make me cancel my Netflix subscription, but at least one of them (and maybe both... we just don't know yet) will bring something new to the table at a reasonable cost.

Building your own TV package out of several specialized online services is getting easier than ever before. As I've said before, this industry is just getting out of diapers and putting training wheels on its bedazzled bike. These are the early days, with plenty of room for several business models to flourish as digital entertainment grows up.

DISH may become a leader in its particular niche, and AT&T could sit beside it if Ma Bell plays her cards the right way. But neither one poses any threat to Netflix and its global-growth plans at this point. That may change as each service builds out its business model, but the early rumblings don't sound dangerous at all.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. What you find will downright shock you.

Anders Bylund owns shares of Netflix and Walt Disney. The Motley Fool recommends and owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information