AT&T (NYSE: T) jumped into the online video space with both feet Tuesday, announcing a joint venture with the Chernin Group--which holds a majority stake in OTT anime network Crunchyroll. The Tier 1 provider committed more than $500 million to fund SVOD (subscription video on demand) services, advertising and other online streaming initiatives.
"AT&T and The Chernin Group are combining our skill sets to address the growing consumer demand for accessing content how and when they want it," said John Stankey, chief strategy officer at AT&T, in a joint press release. "Combining our expertise in network infrastructure, mobile, broadband and video with The Chernin Group's management and expertise in content, distribution, and monetization models in online video creates the opportunity for us to develop a compelling offering in the OTT space."
What the investment means for online video services like Netflix (NASDAQ: NFLX), Hulu, Amazon (NASDAQ: AMZN) and others is pretty clear: AT&T and The Chernin Group will compete directly with them for the OTT audience.
The Chernin Group's expertise in the online video space will, AT&T clearly hopes, diversify what it can do with its networks.
"The company has been looking to expand the kinds of services it can deliver either through its wireless or wired network as it looks to avoid the fate of becoming a 'dumb pipe' that can only make money off of connection fees," CNET's Roger Cheng wrote.
It also brings to the surface some pros and cons from the AT&T side: On one hand, AT&T's U-verse buildout, including its Project VIP initiative and recent gigabit network commitment, means a continued increase in broadband speeds for its customers resulting in better, higher quality playback of any OTT service.
On the other hand, funding its own SVOD and streaming initiatives means, maybe, another network bottleneck for Netflix, which is already paying Comcast (NASDAQ: CMCSA) for better bandwidth access over its network to reach Netflix subs. AT&T also owns its network, meaning it could in theory control direct access to its broadband customers where it connects to the broader Internet. (Keep in mind, though, that Netflix has never yet implied that any ISP--other than Comcast--is throttling its bandwidth over their networks.)
AT&T's investors were happy with the announcement. Shares in the Tier 1 provider rose 23 cents, to $36.29, in late morning trading, according to the Associated Press.
The move by AT&T provides perhaps even more justification for Netflix's planned raise in subscription prices this quarter, by $1 to $2 over its current $7.99 standard rate. The online streaming pioneer already knows it faces stiffening competition this year, citing headwinds in its second-half forecast of lowered cash flow during its first-quarter earnings presentation on Monday. AT&T is just one of several threats to Netflix dominance--Verizon (NYSE: VZ) reportedly is looking at getting into the OTT space through similar means, according to the AP.
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