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The Cord-Cutting Wars Are About to Start -- And AT&T May Already Be the Victor

By Chris Neiger – Oct 29, 2016 at 9:07AM

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The company's new DIRECTV Now service will launch next month, and it could be buoyed by content from the company's Time Warner deal.

Image source: Getty Images.

AT&T (T -0.81%) is poised to launch its new over-the-top (OTT) online steaming TV service next month, called DIRECTV Now. The streaming service is unique in that it won't require a set-top box as cable providers and satellite companies do, but will offer the same (or nearly the same) channels that come with traditional pay TV.

The service will have 100 live TV channels, rivaling Dish Network's (DISH -5.74%) Sling TV and Hulu's upcoming live TV service, and will be priced "radically lower" than similar OTT services, according to AT&T CEO Randall Stephenson.

On face value, it's an intriguing service for consumers and could be a great business move for the company. But AT&T's recent $85.4 billion bid for Time Warner (TWX) has the potential make DirectTV Now an instant OTT powerhouse.

Content is still king

To better understand how the Time Warner purchase could significantly benefit AT&T's upcoming OTT service, we need to first understand just how much content the company will have access to from the deal. Take a quick gander at what AT&T will pick up from the purchase:

  • CNN
  • TBS
  • TNT
  • Cartoon Network
  • Warner Bros. films (Harry Potter!)
  • DC Comics
  • NBA and MLB games from Turner Broadcasting
  • HBO

Why does this matter? After all, Sling TV and other OTT services have access to this stuff, too. But the benefit for AT&T is that owning this content would give it the opportunity to use the content much more cheaply than other companies are able to, and likely with fewer restrictions. 

For example, Stephenson mentioned some possibilities on CNBC last week: 

What can you do with Time Warner content, really fast and very uniquely for our customers? Can we integrate social into that content? Can you have the capability to, I'm watching content, clip it and send it via social media to my friends?

OK, the social-media-clipping part is not exactly earth-shattering innovation here (I'm guessing AT&T mobile users aren't sitting around desperately waiting for this feature to launch), but being able to use content in unique ways -- and for cheaper licensing fees -- is significant. 

AT&T would not only have easy access to a treasure trove of content, but it'll also have the opportunity to potentially charge its competitors higher licensing fees for said content. No, AT&T won't be able to hoard television shows and movies (government regulations will likely keep that from happening), but it could make them more expensive for rivals to get access to. 

Additionally, the purchase of Time Warner will give AT&T a stake in its future competitor Hulu. Time Warner purchased a 10% stake in Hulu last year, and in that exchange, Time Warner got a piece of ownership and Hulu got access to content on Turner's networks. 

The details of that exchange are likely set (so don't expect AT&T to all of a sudden jack up the price for Turner content on Hulu), but the 10% ownership of Hulu's new service and snatching up all of Time Warner's content means that AT&T could start 2017 as a dominant force in the alternative pay-TV space. 

Tune in for how this all plays out

There are still a few unknowns for AT&T right now. The most important are how many consumers will sign up for DIRECTV Now and how well the company will be able to execute its purchase of Time Warner (assuming the deal goes through).

But if the company is able to pair DIRECTV Now with content from Time Warner -- all while bringing in licensing fees from its competitors -- then it might just be able to leapfrog Hulu and Sling TV in one fell swoop.

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Time Warner. 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.

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