AT&T says ad-supported streaming will help control costs, fund content acquisitions

AT&T's WarnerMedia is planning subscription and ad-supported video streaming service launches. (WarnerMedia)

AT&T CEO Randall Stephenson has placed high expectations on WarnerMedia’s upcoming subscription streaming video service and its ability to compete with Netflix, Disney and others.

“We don’t think there will be a proliferation of these that will succeed over time. But those who have very strong IP, deep libraries of IP, are the ones that we think are going to succeed over time,” said Stephenson during Wednesday's earnings call.

But AT&T is still determined to model its streaming strategy as a two-sided business: a subscription service model and an advertising-supported model. Stephenson said advertising will be important for keeping prices down for consumers and for funding more content acquisitions and that Xandr is going to be a big part of generating that ad revenue.

Earlier this month, AT&T’s ad business Xandr and Turner revealed more details about how their targeted advertising products will work. Turner has already been using its data-based AudienceNow platform for more targeted ads across linear television. But AudienceNow will begin incorporating Xandr’s viewership data rounded up from AT&T’s more than 40 million set-top boxes. In addition to better targeting of ads for certain audiences, the integration is promising to provide faster turnaround of campaign posting.

In terms of continuing to license WarnerMedia IP—like what AT&T recently did with “Friends” being non-exclusively licensed to Netflix—and keeping content for its streaming platforms, AT&T said it will have to evaluate each content decision based on how critical that content is for the company’s streaming platform.

“We actually do believe that having a 90-year inventory of incredible IP is a really important thing and when you look out at the landscape in terms of what is being consumed on a lot of the other aggregators and streaming products, you would be surprised how much of that is Warner Bros. intellectual property,” said Stephenson. “So, we’re going to be making some decisions over the coming two to three years on which of the property will be brought in and which to be sold on a non-exclusive basis.”

RELATED: DirecTV Now loses 267K subscribers as AT&T clears out promo pricing

WarnerMedia said its direct-to-consumer product, currently scheduled for a beta launch in the fourth quarter of 2019, will feature three distinct tiers of service. An entry-level product will focus on movies, a premium service with original programming and “blockbuster movies” and a third service that bundles content from the first two plus an extensive library of WarnerMedia and licensed content.

Although AT&T is still looking ahead to its direct-to-consumer streaming launches, the company is currently dealing with massive subscriber losses within its traditional and streaming linear TV services.

As the company predicted last year, DirecTV Now saw negative net subscriber adds during the fourth quarter. But AT&T Chief Financial Officer John Stephens said DirecTV Now average revenue per user (ARPU) rose about $10 from the third quarter thanks to 500,000 promo price subscribers leaving the platform. AT&T said its regular price DirecTV Now subscriber base still grew during the quarter and suggested that it added about 230,000 full-price DirecTV Now subscribers—either new subscribers or promo price subscribers who transitioned over.

AT&T predicted EBITDA stability for its entertainment group in 2019 and, as a part of that, predicted its total video subscriber base would remain around 25 million from the end of 2018 to the end of 2019. Given the fact that AT&T lost another 391,000 traditional video subscribers in the fourth quarter, Stephenson clarified those earlier remarks.

He said that a big part of those 25 million subscribers at the end of 2019 will be from AT&T’s skinny streaming bundle, WatchTV, which has a very low ARPU but is profitable.