AT&T’s new streaming television service DirecTV Now offers HBO for $5 per month—a practically unbeatable price—but programming and other direct costs could add up and eat into profits, according to analysts.
“By stacking their base package with all the best networks—likely a requirement for getting the programming contracts at all—they still have the same problem that was highlighted initially,” research firm MoffettNathanson wrote in the blog post. “Put simply, they aren’t going to make any money.”
Related: DirecTV Now’s $35 price point could leave out some content partners, analyst says
The DirecTV Now package of more than 100 “premium channels” is listed at $35, which is a promotional rate and will eventually increase by $25 a month. The service’s base package, which will stay at $35 per month, includes all of the major general entertainment networks: USA, TNT, TBS, FX and AMC. HBO as well as Cinemax can be added to any package for $5 per month.
MoffettNathanson reviewed year-old per-channel estimates from SNL Kagan to get an idea of how much the programming will cost, and found that the programming included in the base $35 package will run about $30 per month (though that number is probably low).
Related: HBO CEO: Time Warner movies make up 70 percent of our viewing
For HBO specifically, however, the add-on price of $5 may not last.
“Remember that HBO is still a standalone business and won't do deals that don't make sense for HBO,” said Mark Lowenstein, managing director at industry analyst firm Mobile Ecosystem, in an email to FierceCable. AT&T recently announced plans to acquire HBO parent company Time Warner, though that transaction isn’t expected to close until next year at the earliest.
“There are many other deals with other pay TV providers that bundle in HBO or offer it for lower than the ‘retail’ price. And I don't see the $5 offer as permanent, either,” Lowenstein added. “HBO still needs a substantial revenue base to fund the enormous investment in content it is making. Netflix, its most significant competitor, incidentally, is doing pretty well at ~$10/month.”
And though the FCC may hear complaints that the popularity of HBO and those price points give AT&T even more of an edge over the competition, Roger Entner, founder and lead analyst at consulting firm Recon Analytics, said he doesn’t expect the situation to stall AT&T’s transaction with Time Warner.
“Commissioner Pai and O'Rielly have stated already that they are okay with free data offers of different providers,” Entner said in an email to FierceCable. “A Republican-led FCC will probably not differ from what the two Republican Commissioners have already said.”