AT&T Sets Its Eyes on NFLX Stock
Another company just entered the online streaming game to take down Netflix, Inc. (NASDAQ:NFLX). The new rival is an itty-bitty company you may have heard of: it’s called AT&T Inc. (NYSE:T).
As one of the biggest cable providers in the United States, AT&T has the ability to cajole users into its subscription service. Unsurprisingly, this has many analysts worried about whether Netflix stock (NFLX) can survive the increased competition.
But I’m not that concerned yet. From the scant details AT&T released, its service doesn’t seem likely to dethrone the current king of online streaming.
Let me explain…
Last year, AT&T shelled out $50.0 billion for DirecTV (NASDAQ:DTV), making it the biggest pay TV provider in the country. But TV was a dying medium then, and it continues to be one today. The real reason for the acquisition was that AT&T could then challenge the digital supremacy of Netflix.
As a result, AT&T just launched bundles of live-streaming channels. It will cost somewhere between $35.00 and $70.00 a month, but the important part is how the signal is delivered. Rather than traditional cable, these feeds will arrive via the Internet.
This means that users can pull up the video on their smartphones, web browsers, and streaming devices, like “Roku” or “Chromecast.” (Source: “AT&T Unveils Pricing for DirecTV Now Streaming Service,” The Wall Street Journal, November 29, 2016.)
At first blush, I can see why this looks threatening to Netflix stock (NFLX).
AT&T isn’t repackaging an old on-demand service as a Netflix-style product—it is actually taking the TV experience online. The standard 100-channel setup, which costs $60.00 per month, will temporarily be offered for $35.00. These channels aren’t like Netflix at all.
It’s much more like the streaming service launched by “Sling TV,” or the 100-channel bundle from “PlayStation Vue.” Except there is one difference: AT&T is a cable and cell provider, first and foremost. It has the power to make sure its services don’t count against users’ data.
The practice is called zero-rating. Many critics think it is unfair and hinders freedom on the Internet, but it is legal nonetheless. AT&T can favor its own streaming service if it wants to.
Like I said, the situation looks dire for NFLX stock … that is, until you dig a little deeper.
For instance, AT&T still hasn’t managed to sign deals with CBS and the National Football League (NFL). One of the appeals of live streaming TV via the Internet is that it could include live sports. However, the NFL has already signed away rights to Verizon Communications Inc. (NYSE:VZ).
Moreover, the service doesn’t include a digital video recorder (DVR) function. AT&T plans to add one next year, but until then, the lack of a recording function is a jaw-dropping oversight. There also could be advertisements on the platform, which would defeat the point of online streaming.
Many consumers cut the cord to avoid incessant commercials interrupting their shows.
All these reasons are likely going to insulate NFLX stock, but there’s one more fact that I think is important. To put it simply: Netflix is still way cheaper than DirecTV.
Editor’s Note: Hi, Gaurav S. Iyer here. If you enjoyed this article, you can get more of my opinions and commentaries in our popular daily tech letter, Profit Confidential. Published daily, it’s FREE! Join us when you click here now.