Big changes are coming to DIRECTV NOW in 2019. This is based on comments provided by AT&T’s CEO, Randall Stephenson, during the UBS Global Media and Communications conference which took place earlier in the week. As part of those comments, Stephenson effectively confirmed the company’s plans to reduce the content offered through DIRECTV NOW, but at the same time increase the actual cost to consumers.
Some will pay more, others will get less
Although nothing is set in stone until it’s officially announced, Stephenson clearly stated that the company’s ideal price point for DIRECTV NOW is in the “$50 to $60” price range. This is not just a theoretic ideal either with Stephenson indicating this is the price range the service will look to adopt by the end of 2019, arguing this is the “right” price for the product that’s offered and one which gets the service “to where it’s profitable.”
While a price increase is one thing, part of that ‘getting to profitability’ theme seems to also include a reduction in content. No firm details were provided on what this exactly will entail although Stephenson did point out that AT&T is “thinning out the content” with the suggestion this is for the benefit of the consumer as the thinning will be designed to ensure the product offers “content that’s really relevant to a particular customer segment.” A segment that's understood to be relevant to those who want “a lower price offering” and therefore it would seem the idea is not only to raise the price of DIRECTV NOW to somewhere in the $50 to $60 region, but to also cap the price at that level. Which means customers who now pay more for the service, can expect to pay less (for less content), while those who pay less currently will pay more.
Part of a multi-tier TV attack
This is not strictly speaking just a redefining of the DIRECTV NOW pricing compared to today as the comments highlight this is part of a much wider and aggressive move on the TV market by AT&T. One where the company is looking to ensure it competes at every price point possible. For example, AT&T already introduced a budget-priced solution in the form of WatchTV which offers limited TV access for just $15 per month. In addition, the company is also planning to launch a new hardware solution in early 2019 powered by DIRECTV NOW - or at a least a version if it. In this week's comments, Stephenson also talked briefly on this device noting how it will be a cheaper solution for consumers compared to the current version of DIRECTV as it will arrive offering “a thinner package of content at a lower price point.”
It still remains unclear how low the price will be for this package although this is clearly going to be aimed at those who are still in cable-like agreements as in spite of the device being similar to a typical third-party streaming device, the experience it will offer will be more akin to traditional TV packages than those offered by independent streaming box manufacturers - even though it will also offer many of the same features such as the ability to download and run many third-party apps and services. What’s more, the hardware solution also offers the added benefit to consumers (and AT&T) of being a self-install unit and therefore won’t come with any additional setup costs, or even require an internet connection from AT&T. Keeping with the multi-tier approach, this singular product is also expected to arrive to market with its own varying price points.
Price increases not a total surprise
In glossing over the fact there’s going to be a price increase to the current DIRECTV NOW entry point, the comments do reiterate comments that have continuously been made in recent months by those in the industry - the current pricing models adopted by vMVPDs is not sustainable. With this being a new market compared to traditional TV solutions, many vMVPDs have been racing to the bottom on price in a bid to secure a substantial enough user base before the market settles into what is presumed to be its normal pricing structure. To the point where it has become clear that many of these vMVPDs are actually running at a per subscriber loss. For example, it was recently reportedly that YouTube TV was running at a loss of $9 per month, per subscriber, and that was following a $5 per month price increase that came into effect earlier in the year.
This loss-making and price-setting landscape was further evidenced by how that YouTube TV $5 price increase came at a time when Sling TV, PlayStation Vue, and DIRECTV NOW all increased their baseline price points by the same amount. Highlighting that once one makes the move to increase prices even a little, the rest are typically not far behind as they all look to recoup as much as they can without appearing to be any more expensive than the others.
This is where AT&T’s multi-tiered approach is likely to pay dividends as although the price increase to a minimum of $50 is fairly substantial compared to the current $40 entry price, as well as the prices now offered by the service's competitors, AT&T is in in the process of building out additional services that compete at different price points. So if the $50 to $60 price becomes too much for certain price-conscious consumers, AT&T will have other options that it can direct those customers to without those consumers having to step away from the AT&T bubble.
Expect changes to other services to follow
As AT&T starts to increase its prices, services that offer a like products will likely also start to increase in price. This remains an industry where although there’s a superficial bottom price currently in effect, no one really views that price as stationary. The entire industry is changing at the moment and this means everyone involved from content creators to distributors and advertisers are all looking at ways in which they can best generate the level of revenue they have previously become accustomed to through traditional platforms. The result being, and as already seen by the price change to the $40 new normal, once one makes a significant change, others do follow. Whether that specifically means the other services will now also increase their prices to the same level, or thin down the content they offer, or both, remains to be seen. But changes to this effect will likely take place in 2019. Hulu, for example, who not only offers a service that competes with Netflix, but also one that competes at the live TV level, has also made numerous suggestions recently that it wants to redefine what live TV packages mean - usually code for offering less channels and network access, but marketed as a more curated experience offering the channels consumers want.