AT&T CEO Says Time Warner Deal Not About Raising Prices
October 25 2016 - 5:40PM
Dow Jones News
LAGUNA BEACH, Calif.—AT&T Inc. will charge just $35 a month
for its over-the-top television service DirecTV Now when it
launches next month, Chief Executive Randall Stephenson said,
pointing to it as an example of how prices won't rise as a result
of its $85.4 billion acquisition of Time Warner Inc.
At the WSJDLive conference Tuesday, Mr. Stephenson and Time
Warner CEO Jeff Bewkes laid out arguments that are likely to be
presented to regulators reviewing the massive deal. The combination
will bring new competition to the cable television and advertising
markets, they argued, and said previous concerns from Comcast
Corp.'s acquisition of NBCUniversal in 2011 are outdated.
"We're going to be a head-to-head nationwide competitor with the
cable ecosystem," Mr. Stephenson said, a clear message that the
deal will bring new options to customers. He has previously
acknowledged that such a product could hurt AT&T's existing
satellite television business, but the new service will target the
estimated 20 million households without pay television.
"If there was ever an environment that was begging for
innovation, it is this environment," Mr. Stephenson said. Mr.
Bewkes added: "We would say and we've been saying it since 1995,
every channel in the country should look like HBO or
Netflix—there's no reason we can't."
The price of DirecTV Now appears to undercut competitors in an
emerging market where more players, including Hulu and Alphabet
Inc.'s Google, are expected to jump in. Hulu is owned by Comcast,
Time Warner, Walt Disney Co. and 21st Century Fox Inc. (21st
Century Fox and News Corp, which owns The Wall Street Journal,
share common ownership.)
A similar offer from Sony Corp.'s PlayStation Vue is more
expensive, at $55 a month for the tier with more than 100 channels.
In comparison, satellite rival Dish Network Corp.'s Sling TV Blue
streaming service, which offers more than 40 channels, costs $25 a
month.
Wall Street analysts had projected a price closer to $50 a
month. UBS analyst John Hodulik estimated that the programming
costs for the streaming service—excluding HBO—are above $30 a
month, meaning the offer price isn't designed to capture sizable
profits, rather to grab market share.
AT&T has said the DirecTV Now service will include more than
100 channels but its lineup hasn't yet been released. An AT&T
spokesman declined to provide details.
Part of the reason for the lower price is that the DirecTV Now
service won't require a satellite dish, an installer or set-top
box. To further drive costs down, the combined company will develop
new ad models "that will allow us to keep the price point in
check," Mr. Stephenson said.
"That's how you hit a $35 price point," he said. Some packages
will be "wireless only, some satellite, some all in between."
The two executives played down concerns that the deal wouldn't
get regulatory approval, again asserting that the deal is vertical
in nature, rather than eliminating a competitor. The deal faces a
review by U.S. antitrust authorities and objections by lawmakers
and media and telecom rivals.
Time Warner's stock closed Tuesday at $87.16, about 18% below
the value of the AT&T deal, reflecting investor skepticism
around regulatory approval.
On Tuesday, Mr. Stephenson said he wasn't surprised by the
concerns and described them as "uninformed comments." He pointed to
the new $35-a-month service and said he is trying to bring prices
down.
"Anybody who characterizes this as a means to raise prices is
ignoring the basic premise of what we're trying to do here," he
said. He argued that comparisons to the Comcast's acquisition of
NBCU don't stand up because the net neutrality commitment pinned to
that deal is now covered by FCC rules for the broadband market.
AT&T has sued the government to overturn the rules.
Other concerns about hindering the development of over-the-top
providers—like Netflix—are also no longer relevant, he said.
"Netflix is going to make it," he said.
The executives also pitched their combination as a counterweight
to the advertising heft of Google and Facebook Inc., as the
combined AT&T-Time Warner will seek to develop new ways to
target consumers with customized ads.
Mr. Stephenson highlighted the planned independence of Time
Warner after the deal, both for the journalism at CNN and the
content production across its studios. The company will be a
separate unit of AT&T. Shows and movies produced by Time Warner
will continue to be distributed "widely and broadly", and
conversely, AT&T will continue to distribute a large array of
content across its networks. And the creative and journalistic
executives will continue to run those operations.
"I'll be the first to tell you, I've never run a movie studio,"
he said. "I don't know the first thing about it."
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com and
Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
October 25, 2016 17:25 ET (21:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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