January 13, 2021

AT&T TV Now-Not Now, Not Ever

The Decline and Fall of the Skinny Bundle

Happy New Year. Let us hope the rest of 2021 has better things in store than the beginning, no? I saw this week that AT&T has finally put an end to its long-suffering AT&T TV Now (aka DirecTV Now), merging the service into its now-mainstream OTT offer, AT&T TV.

What happened to all the skinny bundle services and what does it mean for the future of TV?

Two thoughts…

1. Content Matters. Delivery Technology Doesn’t.
The fundamental flaw with the premise behind skinny bundles is that the monthly price of a subscription pay-TV service and the technology used to deliver the video are not logically related in any sustainable way.

The irony, from AT&T’s perspective, is that the industry should have already learned this lesson—from DirecTV itself! When first launched in 1994, DirecTV’s digital broadcast satellite dishes were a totally different method of delivering video to the home; distinct from cable and over-the-air broadcasts. Once retail prices and quality of service were comparable, the consumer did not care which technology delivered their TV service. It was all about how much content they got for the price they were paying. Everything else was noise.

In 2021, this remains the case. The skinny-bundle model was (and remains) premised on the assumption that pay-TV services based on streaming would be of inferior quality to legacy cable & satellite and therefore less expensive. The problem is that people didn’t want the service that results from that premise, namely a subset of the pay-TV channels that were never capable of fully addressing the needs of consumers.

In short, the problem with skinny bundles is not that they are skinny, but, rather, that they are bad.

The economics of aggregating linear TV content do not work at $19.99, $29.99, or even $39.99 month, forcing the provider to deliver a bad service—i.e., a service that consumers don’t like, much less love. And here’s a surprise: Consumers don’t subscribe to services they don’t like. They won’t sign up in the first place, and if they do sign up, they churn as soon as the promotion ends, which is exactly what happened to the original DirecTV Now service. In response, AT&T fattened the skinny bundle with additional channels that in turn required ever-higher monthly fees, further fueling cancellations.

Virtual MVPD services like AT&T TV Now have largely converged with traditional pay-TV services with respect to both content and price (Sling TV and Philo being the exceptions). The reason is that the “average” bundle reflects what people expect to get from a pay-TV package, and the content costs what it costs. You get what you pay for, period. There is no shortcut.

2. Apps Matter. Devices Don’t.
In early 2013, I somewhat famously predicted that the future of TV was an app. Some of you liked that idea. Some of you hated it. Well, like it or hate it, we’re all now living in that world.

Video services now all exist in the form of apps, and apps—by their very nature—are supposed to run on any internet-connected (smart) device. Yes, there are still odd situations where certain apps don’t run on certain devices, but consumers reject this premise and assume that any device can run any app, and they get angry and frustrated when they don’t. Successful video services have apps on every major device from every major brand, and every successful device must run all the major video apps. Take, for example, the recent kerfuffle between HBO Max and Roku, which can at best be said to have ended in a draw, with this popular app now running on this popular device. This is proof that neither side can hope to fight the consumer on this point.

So, why is AT&T TV still bundling its service with a proprietary device (which for lower-tier users costs an additional $5/month)? It’s a hopeless position, but maybe not a pointless one. Some folks still see AT&T as an end-to-end solution provider, and the company’s retail stores probably need this just so they can answer questions from people who don’t already have a device. The hilarious thing is that the AT&T box is actually just a standalone Android TV device with an AT&T home screen. Underneath, it’s just running a version of same app that runs elsewhere. My guess is that the actual customers for a service at this price point ($84.99/month for the mid-line package) either already own a smart TV or are not stressing over the cost of an Amazon Fire TV device. Either way, if this version of the service ends up making it, it won’t be because of branded CPE.

Legacy pay-TV services (i.e., DirecTV) and skinny-bundle streaming services (i.e., DirecTV Now and its progeny) are both in decline, and for the same reason: the future of TV is an app. This includes both SVOD apps like Netflix and Disney+, as well as vMVPD services like YouTube TV. Compared to best-in-class apps, legacy pay-TV services provide an inferior user experience in terms of technology (which includes UX, search, and access to large content libraries). Compared to a good MVPD service, skinny bundles provide an inferior user experience in terms of content. Consumers both have and haven’t changed. They still want the best service for the best price. AT&T is correct to conclude that a more robust (aka, fatter) TV service is what consumers want, but the emphasis needs to be on the app and service, not a proprietary device.

Stick with TDG and stay ahead of the curve.

Joel Espelien is a Senior Advisor for TDG. He is also Executive Director of the Corum Group where he advises technology companies on M&A transactions. He lives near Seattle, WA.

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