AT&T prices DirecTV Now at $35 a month, won't make money on it, analyst says

Image: DirecTV

AT&T will price DirecTV Now at $35 a month when it launches the virtual MVPD service next month, CEO Randall Stephenson said.

“How do you get to a $35 price point with the prices these guys charge for content? You don’t have a satellite dish, you don’t have a guy spending four hours to install the service, and you don’t have a $300 set-top,” said Stephenson, speaking alongside Time Warner Inc. Chief Executive Jeff Bewkes at the Wall Street Journal’s WSJ.D Live conference in Laguna Beach, California, today. 

The virtual pay-TV service will launch with a national footprint and include more than 100 channels. 

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UBS analyst John Hodulik said AT&T will be hard-pressed to turn much of a profit on the price point, given its programming costs.

"We estimate monthly programming costs for DirecTV Now in the low $30 range, similar to the price AT&T will charge, meaning the company will not make much on this service," Hodulik said to investors in a Tuesday afternoon research note. "However, it will avoid costs for satellites, set-top boxes and installations/trouble-shooting, while also reaching customers who have left the pay-TV market or never joined. Strong growth in this product would support AT&T’s vision for the TWX transaction and likely sit well with regulators concerned about the OTT ecosystem."

When asked if the OTT service, which is as easy to sign up for and quit as Netflix is, will effectively compete with traditional cable at a time when satellite is losing market share to companies like Comcast and Charter, Stephenson said, “I’m evangelical about that. This is the most exciting thing I’ve been a part of in a long time, and I can’t wait.”

Stephenson, however, dismissed the notion that AT&T is looking to displace DirecTV’s traditional satellite distribution scheme, at least in the near term. 

“For a long time, there are going to be households where you need three 80-inch screens streaming heavy video. And satellite is going to be the vehicle for that for a long, long time,” he said. 

Stephenson, meanwhile, used the opportunity to reiterate his position that Time Warner Inc. – the subject of an $85.4 billion AT&T takeover proposal – will be run as wholly owned subsidiary, should the deal be approved by regulators. 

“I’ve never run a movie studio. I don’t know the first thing about it,” he said.

Update: This article was updated on Oct. 26, 2016 to include the research note from UBS.