Next week, AT&T is leaping into online streaming with DirecTV Now, but it’s taking the plunge without CBS, the most popular TV network and the lone holdout for the service among the top media companies, according to people familiar with the matter.
Aimed at would-be cable customers, DirecTV Now is a package of more than 100 live channels delivered over the internet for $35 a month. AT&T, which has delayed the project for more than a year as it hammered out deals for streaming rights, will offer channels from NBCUniversal, Fox, Disney, Turner and others. But the company is unlikely to reach a financial agreement with CBS before its planned introduction, according to the people, who asked not to be identified discussing private information.
Barring an agreement at the 11th hour, subscribers won’t see CBS shows like “The Big Bang Theory,” “NCIS,” “60 Minutes,” and some NFL games. That kind of programming has attracted an average of more than 10 million viewers a night in prime time so far this season.
The stalemate between AT&T and CBS pits two of the biggest figures in the TV industry against each other, and the outcome may determine whether distributors or programming providers now are gaining power in the swiftly changing industry. If DirecTV Now proves successful at gaining subscribers without CBS, the network’s negotiating leverage may wane. If the service flops, CBS’ influence grows.
“There are certain channels you need. Not having them may have some impact if it doesn’t stack up to cable,” said John Hodulik, an analyst at UBS Group AG. “On the other hand, it’s a big worry for CBS, because if this takes off, that’s a lost subscriber, which undercuts their pricing power.”
Representatives for AT&T and CBS declined to comment. In addition to its flagship broadcast network, CBS owns cable networks Showtime, CBS Sports, Pop and the Smithsonian Channel, and it co-owns broadcast channel the CW with Time Warner .
Content providers like CBS have long had the upper hand in the 500-plus channel, conventional TV era because distributors were loath to go without such widely watched shows. But rising programming costs and competitive threats from streaming services like Netflix and Hulu have forced companies like AT&T and Dish Network to fight back and break up the big bundles with lower-cost alternatives.
AT&T said in October it had already sewn up deals with Walt Disney, Time Warner’s HBO and Turner, Discovery Communications, Comcast’s NBCUniversal, Scripps Network Interactive, AMC Networks, Viacom, A&E Networks and Starz for DirecTV Now. The company nailed down another big name on Monday, announcing it had reached an agreement with 21st Century Fox Inc.
The Fox deal includes networks such as Fox News and FX, plus regional sports channels, and has a framework for the Fox broadcast network to be included in DirecTV Now, the companies said this week. While AT&T has deals with Disney and Comcast, it’s unclear whether the broadcast networks owned by those companies, ABC and NBC, are included in DirecTV Now.
CBS has been one of the most aggressive networks in extracting fees from pay-TV providers. And to wield even more power, it is the only broadcast network to make its shows available in a $5.99-a-month, stand-alone streaming service called All Access, for customers that don’t subscribe to cable.
CBS does have a deal with Google’s YouTube, whose planned live-TV streaming service would be one of the first to include the network. YouTube is paying more than the broadcaster typically gets from cable companies, according to a person familiar with the matter. CBS isn’t a part of Dish’s Sling TV, and has yet to reach a deal with Hulu for its forthcoming live TV service. Sony’s PlayStation Vue does include CBS in some markets.
“The fact is all successful bundles, regardless of size or platform, have to have CBS,” Chief Executive Officer Les Moonves said on the company’s most recent earnings call.
To attract more viewers to its All Access service, CBS is mixing live TV with other shows available on demand. All Access will also host original series, such as a new “Star Trek,” as CBS seeks to keep viewers from straying to Netflix or Amazon.
AT&T, the largest U.S. TV provider with 25.3 million subscribers, is also feeling the pinch from online competition. In the past year, since acquiring satellite provider DirecTV, AT&T lost 122,000 TV customers.
DirecTV Now will be the latest test of whether viewers are really clamoring for online TV bundles. Rival Dish’s Sling TV, which starts at $20 for about 28 channels, has attracted only 1 million customers since its start in February last year, according to Parks Associates. Sony’s Playstation Vue, which starts at $39.99 for 65 channels, didn’t make it into Park’s top 10 biggest online services.
To compete in an era of skinnier bundles and lower overhead costs, AT&T is moving its entire TV service to an over-the-internet platform over the next three to five years. DirecTV Now’s app-based streaming requires no installation, no set-top box and relatively no customer support.
The bulk of the expenses will be programming costs. With more than 100 channels, AT&T will pay about $30 a month in content fees, UBS’s Hodulik estimates. That means the initial service won’t be a big source of profit, but the possible addition of premium tiers will probably help improve profit margins.
AT&T will also use DirecTV Now to attract mobile customers. AT&T plans to offer wireless customers free streaming of DirecTV Now, meaning users watching shows on phones and tablets won’t get hit with a big data charges. The service won’t have a DVR feature but replays of live shows will be available for 72 hours, according to UBS.
Depending on what’s in the package, DirecTV Now will have about 2.3 million subscribers by 2020, Hodulik said.
“This should be big right out of the gate,” Hodulik said. “I expect AT&T to put some real marketing muscle behind this. And if it’s successful, it could turn up the heat on CBS.”
Bloomberg’s Gerry Smith contributed.