Some analysts need to stop the insanity when it comes to the subscriber projections they are making for AT&T’s soon to be released DirecTV Now streaming service. I’ve read numbers from some projecting 2M to an outlandish MoffettNathanson report estimating that DirecTV Now could draw about 11M subscribers.
I have confirmed that AT&T will be using at least three CDN partners, including Akamai, Level 3 and Limelight networks to deliver the streaming service. Between all three vendors, AT&T is reserving delivery capacity to support about 1M total simultaneous subscribers. While some have speculated the new AT&T service would be a financial windfall for Akamai since AT&T is a big reseller of Akamai’s services, the revenue impact is minimal. The service also won’t drive any substantial revenue for AT&T in the short or near term.
Running the numbers, if AT&T signed up 1M subscribers on day one, and each subscriber watches 90 hours of video a month, (3 hours a day), the total volume of traffic per user would be 85GB, using the average bitrate of 2.1Mbps. Multiply that times 1M subs and the total volume of bits delivered each month would be 85,000,000GB per month. If each of the three CDNs all got 1/3 of the traffic and AT&T was paying $0.03 per GB delivered, the value of the contract to each CDN would be $850,000 a month. But AT&T won’t have 1M subscribers from day one, will be paying much less than $0.03 per GB and most users probably won’t watch 90 hours a month, or will watch some on mobile, which takes up far fewer bits. For the first few quarters the delivery business would only be worth about $250,000 to each CDN per month, as AT&T ramps. Updated: Some are asking why I used such a high price per GB number. I used the $0.03 pricing number to show that even if AT&T was paying a high rate, the revenue to the CDNs isn’t that much. And while I don’t know exactly what AT&T is paying, it should be below one cent per GB delivered. Probably more in the half a cent range, hence why the business is only worth about $250,000 a month, to the CDNs.
AT&T has said the service will cost $35 a month, but it is expected that price they are quoting will come with restrictions and caveats. For instance the need to take other AT&T services (wireless), a lower quality stream (bitrate), or the limitation of only being able to have one user stream from the service at a time. Earlier in the year when AT&T was talking about their new live offering, the company described the service as a way to “funnel” consumers to more expensive AT&T services and bundles.
There are still a lot of unanswered questions about AT&T’s DirecTV Now service including the exact channel lineup, device/platform support, quality of the video, support for concurrent streaming within the same household and ease of use amongst others. All of these factor into determining the growth and popularity of the service, which has a direct impact on the value of the business to all of the CDN providers and AT&T. Updated: AT&T has launched a new site for their service and they list the Apple TV and Amazon Fire TV as being supported, hopefully additional hardware like the Roku, Xbox, and PS4 will also be supported at launch.