Why AT&T Won’t Regret Buying DIRECTV

Back in July 2015, AT&T completed its nearly $50 billion mega-acquisition of DIRECTV. It’s now been almost exactly two years since the deal was finalized, meaning it’s now possible to ascertain the real effect of the acquisition. Contrary to all the initial concerns about the deal – many of which focused on the potential anti-competitive effects – it now looks like the deal is really going to pay off for AT&T.

The worlds of entertainment, streaming, wireless and broadband Internet are starting to merge and consolidate in unimagined ways, and it looks like the real winners will be those mega-companies with both the reach and scale to survive in a hyper-competitive industry.

And when it comes to mammoth entertainment and technology giants, they don’t come much bigger than the combined AT&T and DIRECTV. The combined company now has a national footprint that reaches an estimated 26 million Americans. Moreover, the company reaches another 19 million customers in Latin America. The same company is now a behemoth that offers wireless, voice, data and TV – and that combination is going to make the DIRECTV a real winner. Here are a few reasons why…

Reason #1: AT&T is going to become the streaming TV leader

If there’s one core reason why AT&T was willing to pay such a hefty price tag for DIRECTV, it was to get access to DIRECTV’s 20 million customers nationwide. At the time of the merger, DIRECTV was the second-largest pay TV provider in the country and by far the largest satellite TV company in the country.

However, AT&T has a much bigger goal in mind than simply winning in the pay TV category – the company also wants to become the undisputed leader in streaming TV content, and now it looks like that goal is very much within reach.

The main way that AT&T plans to capture this market for streaming (not linear) TV programming is by continuing to market the DIRECTV Now offering, which launched with much fanfare at the end of 2016. At the time, DIRECTV came with promotional pricing of just $35 a month. The rumors and expectations were that DIRECTV would have to raise its pricing in 2017 to $40, $45 or $50 per month in order to become profitable. At that higher price point, it wouldn’t be nearly as competitive, especially with streaming TV entrants like Hulu stepping up their game.

But guess what? It’s now possible to get DIRECTV now for just $10 a month if you’re an AT&T wireless customer. The company is running a special promotion where you can stream live TV for just $10 a month if you have the Unlimited Choice plan. At $10 a month, DIRECTV Now would be the same price as Netflix ($9.99) and cheaper than just about any other streaming TV competitor.

Obviously, wireless is going to be the key to winning over the streaming TV customer, and that leads to the second major reason why AT&T isn’t going to regret buying DIRECTV.

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Reason #2: AT&T is going to grow its overall customer base

You can already start to see all the innovative offerings coming out of AT&T these days, and that can only mean one thing: AT&T is going to be able to win over new customers who are attracted by all the new bundling options.

Remember the days of the “Triple Play” for cable companies, in which they encouraged you to bundle Internet, TV and Voice? Well, that’s about to become the Quadruple Play, as they encourage you to bundle Internet, wireless, TV and data. The only thing is – AT&T isn’t going to make it so obvious that they’re bundling all this together. Customers are smart, and they won’t want to get locked in to a massive bundle if they don’t have to.

But the offers could just be so incredibly attractive that they won’t have any choice but to sign up as an AT&T customer. For example, consider HBO. That’s the one cable network property that customers HAVE to have. And AT&T is going to make it very easy to get it. Just check out the current AT&T website – one of their featured deals is the ability to get free HBO if you’re an AT&T customer. Yes, that’s free as in $0 per month.

If you had a choice between, say, Verizon and AT&T, which one would you pick? You’d obviously pick AT&T because you’d get free HBO bundled in. So you’d willingly cut your ties with Verizon (or Sprint or T-Mobile) and sign up for A&T.

What AT&T has recognized is that customers no longer differentiate between how they get content – all they care is that they get the right content at the right time. Thus, for an AT&T customer, it doesn’t matter if HBO is delivered over cable, satellite, wireless or high-speed internet – if they’re getting HBO, then they’re happy.

Reason #3: AT&T is going to boost its revenue per customer

And with so many customers signing up for AT&T service, that’s going to lead to another key competitive effect, and that’s the ability to boost its revenue per customer. In business jargon, it’s called the “up-sell.” It means migrating a customer to a higher price point or a higher overall bill. For a company, that’s a very easy way to grow the bottom line.

The way AT&T is going to up-sell its customers is the same way that McDonald’s up-sells its customers. When you check out at McDonald’s (or any other fast food outlet), the person at the cashier always asks a question like, “Would you like fries with that?” Sometimes they’ll ask, “Would you like to super-size that drink for just $0.25 more?” Or sometimes they’ll just rudely ask, “Is that all???” But the reason is always the same – to get the customer to pay a little more for a meal than they were originally intending to spend.
And that’s exactly what’s going to happen with AT&T. All of a sudden, DIRECTV is going to be the magic add-on that inflates the bill of every customer. An AT&T customer may be happily paying $100 or $150 a month for wireless service, and now comes a chance to “stream live TV for just $10 more per month.” See? It’s just like McDonald’s trying to up-sell you with a box of fries!

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Reason #4: AT&T is going to own the mobile video space

Right now, the #1 major trend in entertainment is the exponential growth in mobile video. Think about the type of content that you consume on your phone or tablet: chances are, it’s video. According to most estimates, we’ve already long reached a tipping point where video is the primary form of content on the Internet. By some estimates, Netflix accounts for the majority of that video content. But there’s also video content from the likes of YouTube. And, of course, Facebook is making a major push into video content.

So you can see AT&T’s major quandary here – the company has seen that its AT&T wireless offering is only as good as the type of mobile video that it can stream. And, again, that’s where DIRECTV comes into the picture. Literally.

But in this case, it’s not about distribution – it’s about content. Think of all the content deals that DIRECTV has signed with the major cable networks. DIRECTV needs all that content for its satellite TV offering, of course. But now AT&T also has access to all that content, in at least some form. And that’s preparing AT&T to become a mobile video behemoth.

Remember – AT&T has nearly 2,300 retail stores across the nation, and those become a powerful way to highlight the content options available at the company. Netflix may be a video giant, but it doesn’t have a brick-and-mortar presence. And, more importantly, Netflix is dependent on the major broadband providers. AT&T, in contrast, has a lot of power over both content and distribution.

TV Everywhere and Net Neutrality

Going forward, there are going to be several buzzwords that are going to define the future success of the AT&T and DIRECTV deal. One of them is “TV Everywhere,” or the concept that TV content should be available on any device across a wide range of platforms: wireless, satellite and cable broadband. As we’ve seen above, AT&T already has a very good TV Everywhere strategy in place.

The other big, important buzzword is “Net Neutrality.” As a huge behemoth with interests in wireless, satellite and cable, AT&T is going to come under a lot of scrutiny. But for now, it looks like AT&T is firmly on board with net neutrality. That means it won’t try to block or slow down the traffic of competitors, such as Netflix or Hulu.

But now it looks like that concern about net neutrality is a thing of the past. AT&T continues to roll out new offerings that make sense for the customer. And the combined AT&T/DIRECTV is at the forefront of so many important trends, such as the mobile video and streaming TV revolutions. Sure, there have been some glitches along the way – such as some concerns with the rollout of DIRECTV Now – but it looks like AT&T has been making all the necessary adjustments.

Years from now, the verdict will be clear — AT&T won’t regret buying DIRECTV. In fact, DIRECTV might be the big reason why AT&T will become the most innovative technology giant in the nation within just a few years.

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