WatchTV nets $2-$3 in margin before advertising, analyst says

WatchTV's greatest value to AT&T might be as a retention tool for high-end wireless customers, Jefferies says. (AT&T)

AT&T’s new ultra-skinny streaming bundle, WatchTV, nets a narrow profit margin of $2-$3 per subscriber on a standalone basis, before advertising. But its greatest value is in its ability to keep the wireless company’s top-end customers in the fold.

So says a report spearheaded by Jefferies analyst John Janedis, released Friday morning. Janedis and his team modeled the new AT&T vMVPD, which will be bundled in at no extra charge with the wireless company’s soon-to-be announced new mobile unlimited data plans. 

“While the product will not be particularly profitable on a standalone basis, we think it could be a good retention tool with unlimited—its highest mar(gin) customers,” the report said.

WatchTV is launching with 37 networks, all from Turner, Discovery, AMC Networks, and A&E Networks. Several other Viacom networks will launch on the network shortly. Jefferies estimates that content licensing runs around $11 per subscriber, with margins coming in at around 20%—similar to AT&T’s higher end vMVPD, DirecTV Now.

RELATED: AT&T debuts WatchTV skinny bundle for its new unlimited wireless plans

Until the arrival of WatchTV, Philo and Dish Network’s Sling TV were the cheapest virtual pay TV services on the market, with respective base prices of $16 and $20 a month. Sling TV offers only 19 networks in its base offering, but unlike WatchTV, Sling carries ESPN. Philo has 40 channels, but doesn't even have the luxury of TNT and TBS for sports access, let along ESPN. 

“Our understanding is that AT&T will only pay the content providers for those wireless customers that are actually using the product, rather than all that download the Watch TV app—we assume that the threshold for the programmers to get paid is very low,” Jefferies added. 

In the runup to Watch’s launch, AT&T executives described the product as the low-end portion of a multitier OTT product offering that—in addition to the $40-a-month DirecTV Now—will also include an $80-a-month full bundle of channels.

At no additional monthly cost, WatchTV users can choose to add one premium service from a list that includes HBO, Showtime, VRV, Pandora Premium and Amazon Music. 

Notable to cable operators concerned about wireless broadband: Users are allocated 15 gigabytes a month of high-speed tethering.

Subscribers to the new AT&T unlimited data plans also get a $15 monthly credit on AT&T’s other pay TV services—DirecTV satellite, U-verse and virtual MVPD DirecTV Now.