AT&T: DirecTV Now Passes Proof Of Concept
Seeking Alpha
Anthony Ruben
Summary
•DirecTV Now passed proof of concept by signing 200,000 customers in one month.
•Sling took about a year to achieve to achieve 600,000 customers.
•AT&T is creating an ecosystem with wireless, content delivery and content.
Last week, AT&T (NYSE:T) reported that its DirecTV Now service had achieved more than 200,000 paid subscribers in its first month of service. I consider this to be a huge win for T and an early signal that its diversified content delivery strategy will be successful.
Click to enlarge
Some myopic observers have focused on DirecTV Now's early streaming and customer service issues. As a user, I admit the service launch has been less than perfect. That is beside the point. The real point is customers have demonstrated they are ready, willing and able to switch from traditional content delivery to AT&T's streaming service. And switch in unheard of volumes. By comparison, the Wall Street Journal noted Sling TV (from DISH Network (NASDAQ
ISH)) signed around 600,000 subscribers in its first year of service.
Now that the "proof of concept" period has passed, T will inevitably make the service less buggy (remember voice quality issues when using cell phones several years ago), improve customer service and focus on rapidly expanding customer acquisition volumes. DirecTV Now will, to a certain extent, be competing against Sling and Hulu, but the real competition will be against the legacy cable companies as well as the "Big Brother" DirecTV service. As evidenced by angst at Disney (NYSE IS) over declining ESPN revenues, consumers are in the early stages of a revolt against expensive, traditionally delivered content. Consumers are seeking the opportunity to view content anywhere, anytime on anything.
The big picture is T's creation of an ecosystem. Wireless is the center; the means of accessing data, content and communication. Content can be accessed in a consumer-friendly way, whether in a more robust traditional DirecTV platform or in the less expensive, more versatile DirecTV Now platform. And content itself will be created by Time Warner (HBO, CNN and Warner Brothers) or perhaps another provider if the merger is rejected. The more T can offer, the more value it can create in bundles, the lower future churn will be and the more value the Company can create for its shareholders. In the medium term, with 5G technology, T (and Verizon (NYSE:VZ)) will be able to displace the provider of home internet, which in many ways is the fulcrum of today's cable customer.
From an investment perspective, an ecosystem allows T to be more than simply the provider of a commodity product (wireless). An ecosystem allows for sales synergies (already being seen post-DirecTV acquisition) which 1) improve net dollar margins and 2) make it easier to say "yes" and harder to switch. For the past 15 years, cable providers have been pushing the "bundle" to create a communications ecosystem, and largely displaced fixed-wire landlines in the process. What T (and VZ) are moving toward is essentially a next-generation bundle.
From a valuation perspective, a commodity purveyor of a necessity is valued almost exclusively on its dividend. A firm that adds value, by having an ecosystem (and unique content/delivery capabilities) is more valuable. The value differential in today's low interest rate environment is likely +/- 20%. In a higher interest rate environment, the value differential may be greater. In 2016, as both T and VZ made moves into content, investors witnessed the market beginning to value these firms as more than dominant market share holders of commodity products.
Personally, I am sticking with DirecTV Now, warts and all, because it is less expensive than cable and it allows me to view content wherever I am. If I had not been so fed up with the arrogant behavior and obnoxious pricing of my legacy carrier, perhaps I would be more critical of launch bugs. However, I get the big picture and T will get my subscription dollars.
http://seekingalpha.com/article/4038995-t-dir...p;uprof=45
......still watching
Seeking Alpha
Anthony Ruben
Summary
•DirecTV Now passed proof of concept by signing 200,000 customers in one month.
•Sling took about a year to achieve to achieve 600,000 customers.
•AT&T is creating an ecosystem with wireless, content delivery and content.
Last week, AT&T (NYSE:T) reported that its DirecTV Now service had achieved more than 200,000 paid subscribers in its first month of service. I consider this to be a huge win for T and an early signal that its diversified content delivery strategy will be successful.
Click to enlarge
Some myopic observers have focused on DirecTV Now's early streaming and customer service issues. As a user, I admit the service launch has been less than perfect. That is beside the point. The real point is customers have demonstrated they are ready, willing and able to switch from traditional content delivery to AT&T's streaming service. And switch in unheard of volumes. By comparison, the Wall Street Journal noted Sling TV (from DISH Network (NASDAQ
ISH)) signed around 600,000 subscribers in its first year of service. Now that the "proof of concept" period has passed, T will inevitably make the service less buggy (remember voice quality issues when using cell phones several years ago), improve customer service and focus on rapidly expanding customer acquisition volumes. DirecTV Now will, to a certain extent, be competing against Sling and Hulu, but the real competition will be against the legacy cable companies as well as the "Big Brother" DirecTV service. As evidenced by angst at Disney (NYSE
IS) over declining ESPN revenues, consumers are in the early stages of a revolt against expensive, traditionally delivered content. Consumers are seeking the opportunity to view content anywhere, anytime on anything. The big picture is T's creation of an ecosystem. Wireless is the center; the means of accessing data, content and communication. Content can be accessed in a consumer-friendly way, whether in a more robust traditional DirecTV platform or in the less expensive, more versatile DirecTV Now platform. And content itself will be created by Time Warner (HBO, CNN and Warner Brothers) or perhaps another provider if the merger is rejected. The more T can offer, the more value it can create in bundles, the lower future churn will be and the more value the Company can create for its shareholders. In the medium term, with 5G technology, T (and Verizon (NYSE:VZ)) will be able to displace the provider of home internet, which in many ways is the fulcrum of today's cable customer.
From an investment perspective, an ecosystem allows T to be more than simply the provider of a commodity product (wireless). An ecosystem allows for sales synergies (already being seen post-DirecTV acquisition) which 1) improve net dollar margins and 2) make it easier to say "yes" and harder to switch. For the past 15 years, cable providers have been pushing the "bundle" to create a communications ecosystem, and largely displaced fixed-wire landlines in the process. What T (and VZ) are moving toward is essentially a next-generation bundle.
From a valuation perspective, a commodity purveyor of a necessity is valued almost exclusively on its dividend. A firm that adds value, by having an ecosystem (and unique content/delivery capabilities) is more valuable. The value differential in today's low interest rate environment is likely +/- 20%. In a higher interest rate environment, the value differential may be greater. In 2016, as both T and VZ made moves into content, investors witnessed the market beginning to value these firms as more than dominant market share holders of commodity products.
Personally, I am sticking with DirecTV Now, warts and all, because it is less expensive than cable and it allows me to view content wherever I am. If I had not been so fed up with the arrogant behavior and obnoxious pricing of my legacy carrier, perhaps I would be more critical of launch bugs. However, I get the big picture and T will get my subscription dollars.
http://seekingalpha.com/article/4038995-t-dir...p;uprof=45
......still watching
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