Deeper Dive—Why AT&T would want to build a streaming media box

AT&T's streaming device was unearthed at the FCC by Variety about one year ago. (FCC)

AT&T said this week that it has begun beta testing a streaming media device with plans for expanded trials in the first half of 2019. That begs the question: why?

The box, unearthed at the FCC by Variety last year, is a wireless 4K OTT client based on Google’s Android TV. It has a voice remote along with Ethernet, digital audio, HDMI and USB ports. It’s pretty small; roughly the size of an Apple TV, Fire TV or a Roku.

So far, uninteresting. Why would AT&T want to launch its own streaming media box when that market in the U.S. is already so thoroughly dominated by the above-mentioned companies?

AT&T CFO John Stephens said during Wednesday’s earnings call that the devicewhich will use the DirecTV Now platform and will get a “measured rollout”will be EBITDA positive and over time it should lower the acquisition cost for AT&T’s premium video service.

So, the box could make AT&T some money and/or save AT&T some money. But is that reason enough to take on a cluttered streaming device market?

Michael Goodman, director of digital media strategies at Strategy Analytics, said AT&T could be looking to launch a device and platform so it could be an aggregator of streaming services like Comcast and get in on some of that sweet subscription revenue sharing.

But Goodman noted that Amazon has been able to do the same thing with its Channels platform within Prime, and that it didn’t necessarily have to rely on hardware to attract streaming partners like CBS, HBO and Showtime.

He also noted how AT&T has discussed moving away from its traditional satellite and wireline TV services and going all IP through DirecTV Now, WatchTV, a streaming equivalent for the full DirecTV product and the upcoming WarnerMedia SVOD. In that scenario, AT&T might want a proprietary set-top box for security and other reasons, like what Altice has done with SFR in France.

Another possibility is that AT&T wants to charge its streaming TV subscribers for a box, like how traditional pay TV providers tack on a monthly fee for STB rentals. Of course, doing so would fly in the face of the BYOD, one of the key advantages for many consumers choosing OTT.

But if any of these reasons were AT&T’s primary motivations for launching a new Android TV set-top box, why wouldn’t it have released the thing already?

“An Android TV box shouldn’t be that hard to do,” said Goodman, noting that there have already been plenty of trials and there is already plenty of reference material available.

Android TV is typically used by operators for its flexibility and fast time to market. Since AT&T’s Android TV box surfaced at the FCC a year ago, it stands to reason it wouldn’t take another six to nine months just to get to expanded trials.

One potential reason AT&T is taking so much time with its new set-top box could be because the box is being built to take advantage of the company’s soon-to-be-launched 5G network.

Goodman said that 5G makes sense in this case because customers would need a termination point within the home to receive those signals. A set-top box like the one AT&T is testing is not dramatically different in size from the hockey puck-like devices Donovan said would be available soon for receiving AT&T’s mobile 5G signals.

By offering a 5G-ready device alongside its streaming video services, AT&T could take advantage of increased downlink speeds and bandwidth for lowering latency, reducing buffering and mitigating other issues that occur when livestreaming TV. The company could also perhaps more easily handle bandwidth-hungry formats like 4K.

AT&T is just now beginning to deploy mobile 5G, with plans to have it up and running in about a dozen cities by the end of the year and to expand it further early next year. So, the expanded 5G deployments seem to line up with AT&T’s plans to trial its set-top box in the first half of 2019.

At this point, it’s pure speculation as to why AT&T would want to launch a streaming media box, beyond the vague EBITDA-positive, cost-lowering reasons the company gave this week. But a set-top box taking advantage of AT&T’s speedy 5G network seems like as good a guess as any.