AT&T to Invest in Video Streaming

April 22, 2014
By: Gary Kim

AT&T (News - Alert) has partnered with The Chernin Group, which manages and invests in media businesses around the world, and invested in over the top streaming video services.  The partnership plans to acquire, invest in and launch over-the-top (OTT) video services.

The Chernin Group and AT&T have committed over $500 million in funding to the venture.

At one level, the move might be viewed as simply a search for revenue growth in a related applications business with proven customer demand and arguably huge revenue growth potential.

If AT&T already is in the subscription video business, and if online, over the top delivery is the substitute product of the future, AT&T would want to position to supply the new demand as its older business declines.

The move also is strategic in the sense that it allows AT&T to create new revenue streams “out of region.” Traditionally, fixed network service providers have operated in discrete territories with clear geographic boundaries.

That has meant service providers could sell products to customers who lived within those fixed boundaries. Over the top apps are different: they are not limited to use by people who live within a defined geographic area.

In one way, you might say the distinction is between the ability to sell products to “customers” and selling products to “anybody who lives within the United States, even if my network doesn’t reach them directly.”

Taking an over the top approach, AT&T in principle could reach every potential video entertainment viewer, not just those who live within its fixed network footprint.

In other words, AT&T could become Amazon, not remain a place-based retailer. That would be crucial for AT&T in the video entertainment business, as the company reaches only a fraction of U.S. homes, and video entertainment services arguably benefit from national scale.

Because telco TV is not ubiquitously offered, U.S. phone companies have about 10 percent market share, where cable TV companies have about 55 percent share, and satellite firms have close to 30 percent share.

By 2015, AT&T, for example, will be able to market to only about 33 million locations.

Verizon’s (News - Alert) FiOS covers about 17.8 million homes, so the two telcos will pass about 51 million U.S. homes, by 2015, out of perhaps 145 million U.S. homes by 2015.

That implies video services coverage of about 35 percent of U.S. homes. Other telcos will sell telco TV as well, but collectively could only theoretically reach about 14.5 million homes, or so, by 2015, best case.

Even under the best of circumstances, it is unlikely U.S. telcos will be able to pass even 45 percent of U.S. homes by 2015.

An over the top capability breaks through those limitations.




Edited by Maurice Nagle