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Jennifer Van Grove: DirectTV's set-top box is a surprising development

Jennifer Van Grove, San Diego Union-Tribune on

Published in Science & Technology News

DirecTV, the satellite TV business owned by AT&T, is about to try something completely different.

According to documents first discovered by Variety, the company is preparing to release a set-top box that will deliver content entirely by way of the internet, instead of satellite, with Google's Android TV software powering the box. Think streaming shows and movies through apps instead of turning on your satellite TV box to tune in to standard channels.

And that means the box is a challenger to streaming media players already on the market, including the sticks and boxes made by U.S. leader Roku, which just became a public company. Amazon Fire TVs are also popular, and both Google's Chromecast and Apple's Apple TV have loyal followings.

The DirecTV box, then, is a perplexing development. The market for streaming devices and smart TVs is quite mature in the U.S.

About 45 percent of American households with internet access already own a smart TV. And if you're one of the 33 percent of U.S. broadband households who have a stick or box that connects your TV set to the internet, there is absolutely no reason for you to even consider DirecTV's pending offering.

Or is there?

"If (AT&T) had a box that came in at $35 or under, consumers would be interested," Brett Sappington told me. He's the senior director of research at Parks Associates, which pays extremely close attention to the over-the-top -- meaning internet-based TV -- space. "They'd buy it just to see if it worked."

Sappington reasons that a new streaming box isn't dead on arrival, so long as it has a stellar user interface, is feature-rich, is open to all TV app developers and is relatively cheap. An existing DirecTV Now customer, for instance, may be compelled to test out the company's box if it promises better streaming performance -- say, no buffering during any live streams -- and comes with some sort of service-plus-box deal.

"It's a high hurdle, but AT&T has a lot of interest to make sure it has a position within the connected home," Sappington said.

AT&T's DirecTV Now is the most traditional of the virtual multichannel video programming distributors -- these are your streaming cable alternatives or so-called skinny bundles. It starts at $35 per month for 65 channels. And you can even get it for $10 a month if you already have an AT&T unlimited phone plan.

It's worth noting that AT&T lost 385,000 of its traditional pay TV customers (DirecTV and U-verse combined) in the third quarter. The silver lining is that the company added 296,000 subscribers to DirecTV Now during the same period.

But the DirecTV-to-DirecTV-Now migration is not a one-for-one exchange for AT&T. Streaming TV customers are coming in at a negative margin -- as in, they're not profitable for AT&T -- given the discounted rates of the service relative to satellite TV fees.

That's kind of a problem.

When it comes to DirecTV Now, AT&T, said Sappington, is likely thinking more about its long-term future than its short-term losses, meaning it's willing to eat profits in the hopes of staying relevant.

"Right now, there are so many new streaming services hitting the market, but if AT&T can come out as a winner in the long-term, that's a victory."

Presumably, then, the company's internet-connected box can give it an edge against Sling TV, YouTube TV and the others.

But let's not forget that many hardware companies have tried and failed to gain a foothold in the streaming media device market. Or, as Sappington put it, building an over-the-top set-top box is a risky maneuver.

About The Writer

Jennifer Van Grove covers e-commerce and digital lifestyle for The San Diego Union Tribune. Readers may send her email at jennifer.vangrove@utsandiego.com.

(c)2017 San Diego Union-Tribune

Visit San Diego Union-Tribune at www.sandiegouniontribune.com

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