AT&T looks to replace DirecTV satellite with $80-$90 ‘premium’ streaming service

AT&T CEO Randall Stephenson outlined his company's segment video strategy to investors yesterday. (AT&T)

Now on a very publicly stated quest to convert its more than 25 million U.S. pay TV customers to streaming video services, AT&T yesterday revealed details of its new virtual service that will be launched in the coming months around its existing skinny vMVPD play, DirecTV Now.

Launching as a premium service relative to the $40-$60-a-month Now product, an as-yet untitled streaming service will include the full DirecTV bundle, delivered over the top instead of via satellite to U.S. homes. 

“Rather than $110 to $200, it’s going to be in that $80 to $90 area because the cost structure comes way down,” said AT&T CEO Randall Stephenson, outlining details of the company’s segmented video strategy while speaking at the J.P. Morgan Global Technology, Media and Communications Broker Conference. (A transcript of that event was published by Seeking Alpha.)

“Think about our traditional DirecTV product at a much lower cost point, meaning you don’t have satellites on roofs,” Stephenson explained. “You don’t have truck rolls. In fact, to provision this, the only truck roll required is going to be a UPS truck to deliver a very thin piece of hardware that you plug into your TV and your broadband outlet… The subscriber acquisition costs are literally 1/4 of what you see today.”

Particularly notable: “That lower cost gives us the ability to price at a much lower level to capture a different part of the market, and we actually do this. And it's looking like we can do this at margins comparable to what we've experienced in DirecTV,” he added.

RELATED: Deeper Dive—AT&T gets explicit on its ‘transition’ to DirecTV Now … and how the low-margin virtual platform will pay its freight

Stephenson said the new DirecTV service will launch in the fourth quarter. 

He added that another virtual service, the ultra-skinny WatchTV, will also debut this year at a price point of around $15 a month. 

“The content is a very skinny bundle,” Stephenson said. “There is no sports. There are no local channels. This is pretty much entertainment and the Time Warner content. We obviously can't launch this until the Time Warner deal is closed.”

Stephenson made his J.P. Morgan appearance on the same day that the 2.0 iteration of existing virtual pay TV service DirecTV Now debuted. The update, which includes significant user interface changes, includes a cloud DVR. And a third simultaneous user to the platform has been enabled. 

AT&T has outlined a strategy of enhancing DirecTV Now’s notoriously narrow margins by adding premium features like cloud DVR. It’s also looking to develop its advanced advertising around the platform. In fact, the ability to offer advertisers a two-way, IP-based, addressable platform is a key motivator for AT&T’s entire video strategy, along with synergizing its video services for mobile. 

Like Comcast, AT&T’s strategy also revolves around segmenting its pay TV base.

“So you hit that segment of the market with a premium streaming product, DirecTV Now sits then right below that, a more limited bundle of content to the customers, and this begins to be in that $40 to $60 price point with full cloud DVR and so forth,” Stephenson said. “So a nice place for DirecTV Now to sit right in here.”