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Straight Talk Consumer and Entertainment Services

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"It's really simple: The more people who watch your content, the more your content is worth," posited an ebullient Randall Stephenson at the US Department of Justice hearings to determine whether his firm, AT&T, may proceed with the acquisition of Time Warner. In a move that surely prompted some mutterings among his marketing colleagues, he went on to announce to the world from the courtroom that AT&T, within weeks, would launch a $15-a-month mobile TV service that would be offered free to AT&T mobile subscribers on the highest-tier data plan… all 15 million of them.

AT&T Watch offers an ultra-skinny bundle of linear TV channels, notably not including the major broadcast networks, ESPN, or regional sports networks. On the surface, the offering is similar to OTT skinny bundle service Philo. The noteworthy aspect is AT&T Unlimited's approximately 15 million subscribers: if AT&T can drive uptake and usage of Watch, there is a potentially significant untapped mobile TV audience, assuming broadcasters can adequately capture value from advertising to mobile audiences.

The move raises more questions than it answers, and details – outside those offered by Stephenson's courtroom appearance – are scarce. There are certainly questions to be addressed regarding how AT&T will drive uptake and usage of even a "free" service, something mobile operators have struggled with in the past. The lack of major broadcast networks and sports content limits the appeal of the service. Sports in particular is notable, as one of the big drivers for watching mobile TV. There will probably be mainstay channels from the likes of Discovery, Viacom, Scripps, and A+E, and for an Unlimited subscriber who isn't into sports and is horrified by the price of traditional pay TV, AT&T Unlimited alongside an SVOD service such as Netflix or Amazon would offer a pretty healthy viewing diet at a relatively low cost.

In the broader context of AT&T's TV strategy, it is worth noting that with Watch, Stephenson is executing the strategy he discussed when the acquisition of Time Warner was announced: "We want to get the most content to the most screens at the lowest price, particularly mobile." Watch is yet another way in which AT&T is trying to solve the fundamental problem in American TV: how to attract audiences who don't want traditional pay TV, mainly due to the long commitment and high price.

Uptake of pay TV subscriptions is particularly concerning among younger audiences, and AT&T needs new tools to solve the problem. Many of these won't be available until after the Time Warner acquisition is complete, but in the meantime it is offering (considering wholly owned DirecTV as well) more tiers of TV service than ever before. Alongside DirecTV's traditional packages are the skinny DirecTV Now at around $35 per month – which is also heavily marketed in co-promotions with AT&T's mobile business – and now the skinniest, AT&T Watch, ranging in price from free to $15.

But perhaps the questions AT&T is attempting to answer – "how do we make people subscribe to TV?" and "is there any price tier that will work with pay TV holdouts and younger audiences in an era where free and cheap OTT services offer such breadth and volume?" – are the wrong ones. The proportion of Unlimited subscribers who don't currently have pay TV is likely to have some bearing on uptake, as it is difficult to see if Watch offers anything a pay TV multiscreen app wouldn't already. Maybe a clue can be found in the setting in which the announcement was made: this could be a service designed predominantly to appease regulators, which will be left to wither on the vine once brought to market.

There is undoubtedly potential in Watch, but it is entering a crowded market that will get busier. Given its potentially broad reach, the possibility that AT&T can design an effective velvet rope to higher tiers of service is interesting, as are advertising and the data audiences generate from their mobile viewing – even if its commercial benefits for AT&T have yet to be detailed. This is a period in which distributors appear to be taking Facebook CEO Mark Zuckerberg's approach to service evolution: move fast and break things. The TV industry just needs some of them to work.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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