T-Mobile (NASDAQ:TMUS) and Sprint are officially teamed up as one company, but even so, it's still only about as big as AT&T (NYSE:T)... a name well-entrenched in its No. 2 spot behind Verizon (NYSE:VZ). The company is going to have to remain creative if it plans on chipping away at market share currently held by the two titans of the wireless world. And to its credit, it's done so. A day after it officially sealed the deal with Sprint, T-Mobile announced it would offer a free year's worth of the new streaming video service Quibi for certain customers with multiple lines.
Quibi may be nothing now (it doesn't officially launch until April 6), but it's got a chance of becoming something big down the road. And that's exactly why AT&T should have worked out such a deal with Quibi before T-Mobile beat it to the punch. AT&T's digital television effort continues to flounder, missing the mark with consumers, and leaving the company without a means of springboarding existing customers into new services.
In the simplest terms, Quibi -- an entirely separate company from T-Mobile, lest you suspect otherwise -- will be a so-called short-form video entertainment platform initially aimed at U.S. and Canadian markets. It will look a lot like Netflix (NASDAQ:NFLX), offering serialized television programs. It's going to offer least 50 different programs at its launch but expects to be airing around 175 different shows within a year.
The quirk: Each episode will be less than ten minutes long, as opposed to more than 20 minutes for the usual sitcom, and more than 40 minutes for a typical drama show's episode. In fact, Quibi is short for "quick bites," meaning each episode is meant to take only a few minutes to consume.
The other quirk: Quibi shows will only be watchable on a mobile device via the app. They won't be accessible on a television or computer screen.
It's clearly self-limiting, but that's the brilliance. Quibi's programming and platform are both being built from the ground up to be accessible by consumers on the go who may only have a few minutes to spare and can't stop for more than 20 minutes (or more) to view a program. In short, the service meets people where they are in a way that allows them to consume video entertainment -- in an environment where no other streaming service does the same.
It remains to be seen just how much interest there will be in the format. In the wake of COVID-19, consumers have slowed down and become more glued to their devices than ever. eMarketer estimates adults in the U.S. are now looking at their portable devices more than three hours a day. The research company adds that as much as 90% of that time is spent using apps rather than smart phones' communication features. Quibi won't have to lead these consumers very far to get their attention.
That's exactly why AT&T may have fared well by connecting its 75-million-ish mobile customers with Quibi's very accessible content ... with a twist.
AT&T struggles with video
Although not the proverbial big enchilada of streaming video, Quibi could have been a stepping off point for AT&T's wireless customers to test-drive one of AT&T's other streaming video services. AT&T could certainly use the help.
Like most cable TV rivals, AT&T's DirecTV is losing customers as the cord-cutting movement rips through the cable television industry. DirecTV is losing more than its fair share, however, accounting for more than half of 2019's 6.7 million cord cutters, according to fellow Fool Daniel Kline's data from Leichtman Research Group.
It's responded, coming up with a streaming derivative called DirecTV Now that eventually became AT&T TV Now. Earlier this year, it launched AT&T TV, which is technically a streaming service but brings most of the highlights of traditional cable TV to customers. That offering has been widely panned for being overpriced, though, failing to appeal to the cost-based concerns that spur most of the cancellations of linear cable.
Investors can't take much solace in its impending launch of HBO Max, either. The paid (ad-free) version of the broad-scope service is still scheduled to go live in May, despite echoes of the coronavirus contagion likely to be ringing then. At a price of $14.99 per month, the cost of the service is on par with Netflix's top-tier plan and is notably more expensive than Walt Disney's pricing of the top ad-free plan (which doesn't include live television) for its Hulu service. In fact, consumers can have Walt Disney's (NYSE:DIS) Hulu, Disney+, and ESPN+ combined for less than the monthly price of HBO Max.
The ad-supported version of HBO Max will launch in 2021, but it may not matter. While pricing details for it have yet to surface, Comcast's (NASDAQ:CMCS.A) free-to-Comcast-customers, ad-supported version of Peacock will have been available for months by that point. Given AT&T's history of product pricing, it seems unlikely it will be offered at a price better than Comcast's entry into the ad-supported video race.
Simply put, AT&T needs a more introductory price point into its television ecosystem. Quibi, which starts at $5 per month with ads and $8 per month without ads, could have been it.
There's certainly no guarantee Quibi would have been an effective means of easing AT&T wireless consumers into a lower-cost video service and then easing them into a higher-priced one at a later time. Perhaps Quibi will be a massive flop. Anything's possible. For a telco company like AT&T that's largely overestimated its pricing power before -- and paid the price with shrinking subscriber numbers -- at the very least, it would have been a savvy experiment.