AT&T to take mid-single digit profits on DirecTV Now, price it at $50-$55 a month, analyst says

directv
Image: AT&T

AT&T will accept mid-single-digit profit margins and price its upcoming virtual MVPD service at around $50-$55, according to a recent analysis.

"We view DirecTV Now as a potential game-changer, but with two caveats: The customer is not locked into a contract and Hulu is expected to launch a competing OTT product in early 2017," Nomura analyst Jeffrey Kvaal said in a research report Friday. Kvaal predicted DirecTV Now would launch with a price of $55 a month. 

Publishing his own estimate earlier, UBS analyst John Hodulik predicted the service — which will launch with over 100 channels — will be priced at $50 a month.

This is an aggressive price point for a service that has locked down channels from most of the major conglomerates, including broadcast networks. AT&T’s only outstanding major programming deals are 21st Century Fox, CBS Corp. and AMC Networks. 

"If they price too aggressively, there is an obvious risk of cannibalization," MoffettNathanson analyst Craig Moffett said to Investors Business Daily. "They make very attractive margins on their legacy DirecTV business today. Offering an internet-based alternative will mean lower costs, particularly for equipment, so they can justify a lower price. But that doesn't mean they can justify pricing at razor thin margins. That would be cutting off their nose to spite their face."

Speaking to investors last month, AT&T CEO Randall Stephenson conceded the service would roll out with thin margins. 

“We’ll be rolling it out in a couple of months,” Stephenson told attendees at an investors conference. “We’re talking 100-plus channels at a very, very aggressive price point. And when you buy this content, the data required to stream it onto your mobile device is incorporated into the price of the content … If you choose to use that in a mobile environment on AT&T, your data cost is incorporated into your content cost."

For more:
- read this Investors Business Daily story

Related articles:
Viacom signs DirecTV Now deal, but some channels don't make it to streaming service
IP-based pay-TV to be in 15M U.S. homes by 2020, UBS says
Programmers set to trim down network portfolios in skinny bundle era
AT&T's Stephenson: DirecTV Now to offer 100-plus channels of zero-rated video for wireless subs

Read more on