{"id":17386,"date":"2016-11-18T03:03:55","date_gmt":"2016-11-18T08:03:55","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/directv-now-cord-cutting-and-the-future-of-television\/"},"modified":"2016-11-18T03:03:55","modified_gmt":"2016-11-18T08:03:55","slug":"directv-now-cord-cutting-and-the-future-of-television","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/directv-now-cord-cutting-and-the-future-of-television\/","title":{"rendered":"DirecTV Now: Cord Cutting and the Future of Television"},"content":{"rendered":"

A Product in High Demand\"\"<\/a> <\/u><\/strong><\/p>\n

This fall, the possibilities for entertainment on television are more promising than ever:\u00a0 NFL Football, a new season of The Walking Dead, Westworld and the presidential debates to name a few examples.\u00a0 Suffice to say \u2013 there is an abundance of \u201cmust see TV\u201d.\u00a0 But the leading provider of subscription television, DirecTV is not celebrating \u2013 instead they are dramatically disrupting their own business and operating models.\u00a0 This month the company introduced DirecTV Now, a streaming only version of their satellite service to posture their business and operating models for long term success.\u00a0 A new generation of consumers empowered by technology is placing immense pressure on DirecTV and the industry.\u00a0 The differing methods of adaptation and value delivery will determine the ultimate success or failure of DirecTV and the industry as a whole.<\/p>\n


\n<\/a><\/p>\n

\"\"<\/a>A Traditional Model Disrupted:\u00a0 Cord Cutters, Cord Nevers and Cord Shavers<\/u><\/strong><\/p>\n

The traditional DirecTV business model had several streams of revenue: paid subscriptions, equipment rental, and advertisements.[1]<\/a>\u00a0 This profitable model provided gross margins of 30-60%.[2]<\/a> \u00a0Ubiquitous bandwidth growth, mobile use, on demand streaming competitors, and price sensitive consumers have significantly driven down willingness to pay for cable\u2019s traditional subscription model creating a new growing market of consumers.\u00a0 Three segments are impacting the status quo: Cord Nevers, Cord Shavers and Cord Cutters.[3]<\/a>\u00a0 This current market is estimated at 20 million US households and growing at a rate that could soon eclipse the current paid subscriber market share of DirecTV.[4]<\/a><\/p>\n

 <\/p>\n

The Industry Responds – Business Models:\u00a0 Mergers, Acquisitions and Zero-Rating<\/u><\/strong><\/p>\n

In 2015 DirecTV was acquired by AT&T for $49 billion.[5]<\/a>\u00a0 This was the first stage in an aggressive effort to posture against the shifting market by bringing the synergies of internet and mobile with television programming.\u00a0 In a third step, AT&T is in the process of acquiring Time Warner for $85.4 billion.\u00a0 With Time Warner owning several networks, this acquisition completes a trifecta of content, programming and data delivery.\u00a0 AT&T hopes this merger will all them to acquire a \u201czero rating\u201d model.\u00a0 The zero-rating model allows mobile phone users to stream specific content without data usage penalties bundling all value adds of the company in a stronger way than competitors.\u00a0 However, this effort is currently under intense scrutiny with regulators and advocates of net neutrality[6]<\/a>.\u00a0 Some argue that the companies should not be able to differentiate or seek preferential treatment of their internet content over their competitors.<\/p>\n

 <\/p>\n

New Operating Models:\u00a0 Skinny Bundles and Over the Top<\/u><\/strong><\/p>\n

DirecTV Now is attempting to target the cord cutters and cord nevers \u2013 even at the risk of cannibalizing traditional service. \u00a0Differentiating from typical on-demand competitors like Netflix or Hulu \u2013 the network will provide consumers with over 100 channels of live streaming television at a price point of $35 a month.[7]<\/a>\u00a0 The industry refers to this as an \u201cover the top\u201d model – skipping over the top of the cable box and taking content from the providers to the consumer.\u00a0 The company\u2019s major competitor Comcast has taken a vastly different approach, attempting to lure cord shavers with Skinny Bundles.\u00a0 Skinny Bundles provide traditional subscription television with a much more customizable set of channels to suit personal preferences at a lower price point.<\/p>\n

 <\/p>\n

Long Term vs. Short Term:\u00a0 Skinny Bundles or Over the Top<\/u><\/strong><\/p>\n

Comcast\u2019s skinny bundles strategy, strengthened by the Summer Olympics coverage, has been successful with 28% increase in revenue while posting an increase of 48,000 video subscribers during a recent quarter. [8]<\/a>\u00a0 Time Warner publically regards \u201cover the top\u201d with skepticism and believes that it will not lure significant consumers from the cord nevers and cord cutters \u2013 at least in the next 2 years.\u00a0 The performance of DirecTV Now is unknown as it rolls out to consumers this month but similar over the top services such as Dish\u2019s SlingTV have found some success in the market.<\/p>\n

 <\/p>\n

A Cord Cutter\u2019s Opinion:<\/u><\/strong><\/p>\n

As a cord cutter, I am skeptical about either option.\u00a0 It would take a lot to bring me back.\u00a0 I think that DirecTV is taking a crucial first step, but needs to remain open to a bolder combination of both options.\u00a0 They should posture themselves as a first mover in a true over the top model with channel by channel orders \u2013 not bundling.\u00a0 I\u2019m concerned that the entire concept of cable television channels is at stake as on demand content becomes more ubiquitous and the golden standard.\u00a0 I think sports and news channels will survive \u2013 but if the industry wants to maintain the other current content we see \u2013 it needs to continue to be flexible to shifting consumer demand and open to additional disruption.<\/p>\n

 <\/p>\n

 <\/p>\n

Image References:<\/p>\n

[1] Singleton, Micah. \u00a0“AT&T Will Give Away Free Apple TVs to Some DirecTV Now Subscribers.” \u00a0The Verge. 7 November 2016. \u00a0[http:\/\/www.theverge.com\/2016\/11\/7\/13555490\/directv-now-att-apple-tv].\u00a0Accessed 17 November 2016.<\/p>\n

[2] The Economist, \u201cCutting the Cord.\u201d The Economist, 16 July 2016. [http:\/\/www.economist.com\/news\/business\/21702177-television-last-having-its-digital-revolution-moment-cutting-cord].\u00a0Accessed 17 November 2016.<\/p>\n

[3]\u00a0Gryta, Thomas. \u201cAT&T Seeks to Shake Up Pay TV\u201d.\u00a0 Wall Street Journal, 19 October 2016. [http:\/\/www.wsj.com\/articles\/at-t-seeks-to-shake-up-pay-tv-1476882003].\u00a0Accessed 17 November 2016.<\/p>\n

 <\/p>\n

Written References:<\/p>\n

[1]<\/a> Schoen, John.\u00a0 \u201cHow Do the Cable Companies Make Their Money.\u201d SNBC, 20 April 2015. [http:\/\/www.cnbc.com\/2015\/04\/20\/how-do-cable-companies-make-their-money.html]. Accessed 17 November 2016.<\/p>\n

[2]<\/a> The Economist, \u201cCutting the Cord.\u201d The Economist, 16 July 2016. [http:\/\/www.economist.com\/news\/business\/21702177-television-last-having-its-digital-revolution-moment-cutting-cord].\u00a0Accessed 17 November 2016.<\/p>\n

[3]<\/a> Meola, Andrew. \u201cTraditional Pay-TV Loses Even More Ground to Cord Cutters\u201d 16 March 2016. [http:\/\/www.businessinsider.com\/cable-tv-curbs-subscriber-losses-but-cord-cutters-continue-to-grow-2016-3].\u00a0Accessed 17 November 2016.<\/p>\n

[4]<\/a> Gryta, Thomas. \u201cAT&T Seeks to Shake Up Pay TV\u201d.\u00a0 Wall Street Journal, 19 October 2016. [http:\/\/www.wsj.com\/articles\/at-t-seeks-to-shake-up-pay-tv-1476882003].\u00a0Accessed 17 November 2016.<\/p>\n

[5]<\/a> Gryta, Thomas. \u201cAT&T Closes $49B DirecTV Buy\u201d.\u00a0 Wall Street Journal, 24 July 2016. [http:\/\/www.wsj.com\/articles\/at-t-closes-49-billion-directv-acquisition-1437766932].\u00a0Accessed 17 November 2016.<\/p>\n

[6]<\/a> Ramachandrin, Chalini.\u00a0 \u201cAT&T Time Warner Deal Stokes Debate over Zero Rating\u201d. \u00a0Wall Street Journal, 2 November 2016.\u00a0 [http:\/\/www.wsj.com\/articles\/at-t-time-warner-deal-stokes-debate-over-zero-rating-1478037565].\u00a0Accessed 17 November 2016.<\/p>\n

[7]<\/a> Roettgers, Janko.\u00a0 \u201cDirecTV Now Streaming Service will Cost $35 a Month\u201d. Variety, 25 October 2016. [http:\/\/variety.com\/2016\/digital\/news\/att-ceo-directv-now-will-cost-35-a-month-1201900052\/].\u00a0Accessed 17 November 2016.<\/p>\n

[8]<\/a> Ramachandrin, Chalani \u201cComcast Reports Strong Earnings Powered by the Rio Olympics\u201d Wall Street Journal, 26 October 2016. [http:\/\/www.wsj.com\/articles\/comcast-reports-strong-earnings-powered-by-rio-olympics-1477479640].\u00a0Accessed 17 November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

Technology is empowering consumers to cut the cord – what can cable programming providers do to adapt to this changing market?<\/p>\n","protected":false},"author":2214,"featured_media":17388,"comment_status":"open","ping_status":"closed","template":"","categories":[2396,144,2484,518],"class_list":["post-17386","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digital-technology","category-entertainment","category-streaming-services","category-television"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\nDirecTV Now: Cord Cutting and the Future of Television - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/directv-now-cord-cutting-and-the-future-of-television\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"DirecTV Now: Cord Cutting and the Future of Television - 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