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Long on Shortcomings, DirecTV Now Is No Replacement for Cable

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Back in early December, Streaming Media’s Dan Rayburn wrote a lengthy and incisive analysis of why OTT business success has thus far eluded even the biggest players in the market, including Netflix, Amazon, and Hulu. He broke down the numbers on subscribers, revenue, and content licensing costs to show that the status quo is unsustainable—subscriber numbers aren’t high enough, subscription fees are too low, and licensing is through the roof. Netflix alone spent $5 billion on content licensing and creation in 2016—up 50 percent over previous years, while the company’s revenue has only grown 26 percent compounded annually.

Rayburn wrote this just after the introduction of AT&T’s much-hyped DirecTV Now, the latest OTT cable replacement package to hit the market (others include Sling TV and PlayStation Vue). As Rayburn also reported, AT&T reserved CDN capacity to support up to 1 million subscribers at launch, though the company has yet to release early sign-up numbers. AT&T offered major incentives for early sign-up—customers who prepay for 3 months in advance get an Apple TV, and customers who pay 1 month in advance get a free Amazon Fire TV Stick.

Packages range from $35 per month for 60 channels to $70 per month for 120, though early adopters of the 100-channel tier can lock in at $35 per month rather than the list price of $60. With those numbers, it’s hard to see long-term success for the service, though DirecTV Now has the advantage of being just one of the many services AT&T offers. The company admitted that part of its goal in launching DirecTV Now was to entice customers to sign up with the company for internet or mobile, or even convince them that a subscription to the regular DirecTV service is worth it.

I subscribed to the 100-channel “Go Big” tier, and I was quickly reminded of why I ditched cable TV in the first place. Sure, it’s nice to be able to channel surf, though it’s a bit awkward with the Apple TV remote, and it’s great to stumble on a movie that I loved but might not have thought about searching for on an SVOD service. (Within minutes of getting DirecTV up and running, I was enjoying Weird Science.) And from a technical standpoint, DirecTV Now is impressive. It has only a 1- or 2-second lag when switching channels, and the picture quality is as good as cable (AT&T hasn’t released any information about what bitrates it’s delivering).

But of the 100 channels I now have at my fingertips, I’ll still only watch a handful of them regularly. I’m not in one of the markets that includes the big three networks, so I don’t get NBC or ABC (CBS isn’t even included in the service). I’ve got a digital antenna for that, but if I’m going to pay for a cable replacement service, I shouldn’t have to augment it with over-the-air.

And then, of course, there are the commercials—or on some channels, the 90 seconds or 2 minutes of cheesy synth music while the screen displays a placeholder because DirecTV Now hasn’t been able to sell any ads on that show or network. I’m not sure which is worse—commercials for things I don’t want (or that try to convince my kids, who’ve grown up in a commercial-free household, to nag me for things they do want), or those placeholders, which only serve as a reminder of the business challenges a service like DirecTV Now faces. If most early subscribers sign up for the 100-channel tier at the discounted rate, that can’t be good for AT&T if many of those channels aren’t generating any advertising revenue.

I’ll probably keep the service for a couple of months, even though it doesn’t offer many of the things that we’ve come to expect from cable, like DVR or even the consistent ability to rewind live programming. After that, though, I’m not convinced that AT&T has figured out a way to keep me as a subscriber, or to make its service a success in the long run.

[This article appears in the January/February 2017 issue of Streaming Media Magazine as "Don’t Believe the OTT Hype."]

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