Sadly, AT&T didn't choose to seriously shake up the industry, but the addition of another large distributor in the over-the-top content space will help to raise awareness and to grow the overall subscriber base.
finally unveiled its DirecTV Now OTT pay television service at an event Monday night with a relatively sedate pricing structure that is comparable to the existing OTT offerings and, in our view, probably won’t jump-start an OTT revolution and expedite the demise of the traditional TV bundle. While we are somewhat disappointed that AT&T didn’t choose to seriously shake up the industry and fear that the service may be launching prematurely, we think that addition of another large distributor in the OTT space will help to raise awareness and to grow the overall subscriber base. Nonetheless, we still project that the growth in OTT linear television services could offset subscriber declines at traditional pay television distributors. This is one of the reasons that we continue to believe that wide moat rated Disney, which we view as a Best Idea with a FVE of $134, is the best positioned to survive and flourish in the evolving television ecosystem, with its combination of strong networks, production studios, and well-loved characters. We are also maintaining our $35 FVE and narrow moat rating for AT&T.
Neil Macker, CFA, is an equity analyst for Morningstar.
DirecTV Now will launch on Nov. 30 with four tiers service with the lowest at $35 per month for 60-plus channels. There will be a limited time $35 introductory lifetime price for the $60 package with over 100 channels which could entice early adopters. While AT&T management had previously teased a 100-plus channel package for under $40 per month, such pricing is only for a limited time while permanent pricing is in line with the current offerings from Sony’s PlayStation Vue and Dish’s Sling services. However, we still see several flaws with DirecTV Now. First, the service is still in negotiations with CBS, whereas Vue includes CBS On-Demand and local channel in select markets. Second, DirecTV Now currently lacks a cloud DVR option and only offers a limited ability to pause live TV, which we view as major deficiencies versus the more mature Vue service.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.