T AT&T Inc

By Drew FitzGerald 

With the hubcaps falling off the pay-TV industry, AT&T Inc. executives are trying to reinvent the wheel.

The company's latest video service, tentatively named WatchTV and expected to be unveiled Thursday, aims to use a "skinny bundle" of channels to recapture some of the millions of cord-cutters who dropped cable and satellite television. The package would offer a few TV channels to most subscribers for as little as $15 a month while giving free access to subscribers on unlimited data plans.

"This is a very, very skinny bundle that every single one of our mobile customers will get," AT&T Chief Executive Randall Stephenson said last week in an interview with CNBC. "Those are the kinds of things we are going to bring to market."

The wireless company also plans to pay programmers fees based on the package's subscriber base, per industry practice, but the free version that comes with unlimited-data plans would only count subscribers that spend significant time using the app, according to a person familiar with its plans.

That would upend the established model in which cable and satellite-TV companies pay programmers fees based on how many subscribers have a channel accessible in their bundle, regardless of whether they watch it.

BTIG analyst Rich Greenfield said that approach will be "horrifying to sports network owners" like ESPN but likely entice less-watched channels from AMC, Discovery and Viacom, which are worried about bleeding viewers.

"A lot of those programmers are being cut out of bundles" offered by traditional cable and satellite companies, Mr. Greenfield said. "This is the chance for the losers to be winners."

None of AT&T's attempts to shake up the pay-TV business would work without a willing programmer. Its $81 billion takeover of Time Warner Inc., which owns channels including CNN, TBS and TNT, gave it just that. The company closed the deal earlier this month after a federal judge said the Justice Department failed to prove its case that the combination would hurt competition.

Mr. Stephenson first teased the new light-TV service in April, when he testified in defense of the deal. He said at the time that the new plan would withhold expensive sports programming from the bundle, allowing the company to charge customers less for the remaining channels. But the package likely will include basketball and baseball carried on TBS and TNT, according to the person.

The company has other ideas, too. John Donovan, chief of AT&T's communications division, recently said the company would roll out a more full-featured version of DirecTV delivered over the internet rather than via satellite link.

"It will look and feel exactly like DirecTV does today, but its delivery will be over broadband," Mr. Donovan said at an investor conference.

AT&T needs a boost regardless of the outcome. Its DirecTV satellite business and landline video unit lost more than 1 million customers last year. The company offset some of the decline with nearly 900,000 new sign-ups to DirecTV Now, a less expensive online-TV package, but executives say that service isn't yet profitable.

The losses weren't restricted to AT&T. Traditional video providers like Comcast Corp., Charter Communications Inc. and Dish Network Corp. also suffered steep customer losses as Americans switched to less expensive online alternatives or stopped buying live TV packages altogether.

TV distributors might recapture some of those customers who abandoned traditional video with skinnier bundles, but AT&T has struggled so far to do that.

"Paying your left pocket, Time Warner, less so that your right pocket can make more money isn't going to work," said Craig Moffett, an analyst at industry research firm MoffettNathanson.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com

(END) Dow Jones Newswires

June 21, 2018 05:44 ET (09:44 GMT)

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