While AT&T (NYSE:T) has joined DISH Network (NASDAQ:DISH) and Sony (NYSE:SNE) in offering pure-digital live-television streaming services, customers have yet to show a widespread demand for such products. In fact, while the cable and satellite companies hope these services become the TV platform of the future, consumers have shown limited interest in actually signing up.
In this segment of Industry Focus: Consumer Goods, Vincent Shen and Daniel Kline look at the competition in this space and the limited success that existing players have been able to carve out for themselves. It will require a major sea change before any of these services make significant contributions to the financial results for their parent companies.
A full transcript follows the video.
This podcast was recorded on Dec. 13, 2016.
Dan Kline: The reality is, they have built a me-too service. This is somewhere in-between what Dish and Sony are doing. Sony has a pretty traditional cable offering, in terms of its pricing and its package, whereas Dish is going for more Millennials -- "this is the best of the best, this is what you're going to watch." AT&T is somewhere in the middle. At that $70 price, it's not that cheap; at the $35 price, it's a good deal. The problem is, consumers have not shown that they actually want these services. I know you have the numbers, but the cable universe is about 94 million homes, even with the slow decline in cord cutting. Why don't you jump in with how many people are getting these?
Vincent Shen: You mentioned Sling and Playstation Vue as the main, what people would see as the competitors of this service. I want to mention, as a first foray into this world from AT&T and DirecTV, it's pretty competitive. I think it's actually, for what this world is, a pretty strong showing.
Kline: At the promo price, it's by far the best offering, because not only do you get $35 for 100 channels, you also can stream two streams, whereas the Dish offer is only one. Sony's is multiple, but it's much more money.
Shen: I think the bottom line, at least for customers, is that this is an attractive package. I think some people have been looking for that live TV competitor to your standard cable package. For some people, it will very much be cheaper if you can get in at that promotional rate, it becomes very compelling. After that rate expires, or once that promotion ends, I think it loses some of its luster, for sure.
In terms of the impact for the company, so if you're an AT&T investor, and you're looking at this like, "Is this a game changer for us?" I think, you have to keep in mind the scale of the business and what kind of impact this can have. I was really surprised. Even with Sony's Playstation Vue, the service has been out for how long, Dan, do you know?
Kline: Just a few months, not that long. Six months or so.
Shen: I think it has, just recently, in the past few months or so, crossed 100,000 subscribers.
Kline: And Sling is coming up on two years, I would say.
Shen: Yes, Sling came out in early 2015, so coming up on two years. That is also now approaching about one million subscribers. So, even the best case scenario, let's say that DirecTV Now can pick up one million subscribers to match Sling in the first six months, and every single one of those people adopts it at the $70 "go big" package.
Kline: And none of them drop DirecTV's regular package to get it.
Shen: Exactly. You're looking at $70 million incrementally, whereas in terms of these segments within AT&T, its cable TV business is a $20 billion business. So, it's important to think about where this really falls into things, and what you described as a me-too offering, that ultimately rings true.
Kline: We've talked about this: I'm super negative on this product. And I like Sling, I used Sling for a long time when I traveled, I played with it. But the reality is, they're going after you. They're going after younger potential cord cutters, or cord nevers, and saying, "Well, we're not going to get you for $110 a month for cable, maybe we'll get you for $20 or $30 or $40." And the problem is, the person who doesn't have cable is watching something else. He has Netflix, he's watching YouTube, he's watching Twitch video games. It's not someone who desperately misses cable.
Shen: I will say, right now my internet package gets paired with a pretty basic TV bundle. This is the kind of thing that would make me rethink that. If I can get in at $35, get way more value out of that, it does become attractive. AT&T specifically says, there are 20 million people not subscribed to any sort of paid TV service that they think this will appeal to. I think that's very optimistic.
Kline: I was going to say, that includes the Amish, that includes the elderly. Every cable company is doing this. Comcast is working on a service. Everyone is going to have one. And maybe you will see the end of the cable box, and this type of delivery will just become the norm, so the 94 million will morph over into slightly less expensive packages with a little bit more choice. But, this idea that there's this huge untapped audience of people who, they won't pay $70 for cable, but they will pay $35. And the second they drop their cable subscription, their internet bill is going to go up $5 to $15, and then Comcast is going to put a data cap on them. And if they start watching a bunch of movies, and downloading 4K video, then they're going to pay overage charges. So, the reality is, these are products built for a theoretical future that nobody has proven is actually coming.