After 24 hours with DirecTV now...

[SpaethCo]

How do they know which satellite subscribers have good internet?

DirecTV satellite receivers have Internet connections for on-demand. Since they control that entire platform, they could have the receivers run connection tests and use that data to select beta participants.

The reason DTVN subscribers make great beta candidates is that they have demonstrated a willingness to stick with a product, even if it’s unreliable and lagging the rest of the market in functionality.

 

[Soccernut]

I'm a DIRECTV and AT&T U-Verse internet customer, was upgraded to unlimited data this month without asking, stable 45 megs, I got a feeling that an offer is coming to go with streaming when the service becomes available.

 

[slice1900]

I'm a DIRECTV and AT&T U-Verse internet customer, was upgraded to unlimited data this month without asking, stable 45 megs, I got a feeling that an offer is coming to go with streaming when the service becomes available.

Directv has no incentive to switch people from satellite to streaming. It doesn't cost them any less for existing customers, it will only cost them less to install new customers.

To the extent that the new IP service is priced lower than the satellite service, they would LOSE MONEY switching customers. They upgraded you because that makes you stickier as both a Directv and Uverse customer, because you must keep both to keep that unlimited data.

 

[Soccernut]

Directv has no incentive to switch people from satellite to streaming. It doesn't cost them any less for existing customers, it will only cost them less to install new customers.

To the extent that the new IP service is priced lower than the satellite service, they would LOSE MONEY switching customers. They upgraded you because that makes you stickier as both a Directv and Uverse customer, because you must keep both to keep that unlimited data.

I guess you're right.

 

[bobvick]

I don’t think it will have a ‘DVR’ in the same way your HR24, 34, 44, etc.. has a DVR. It will be cloud based. The ‘box’ AT&T will use, the C71KW, is already out, being beta tested by DirecTV Now users that volunteered to test.

I thought they were releasing a true DTV experience, all the channels, etc, over IP, separate from DTV Now.

The 'box' DirecTV is releasing for the 'real' DirecTV over IP service is just a little android based box, with a heavily modified software. It is about the size of a Roku or Nvidia Shield, somewhere close to that. There is no local storage on the device. The 'DVR' portion will be cloud based, not local. With a setup like that, you'll no longer have a local DVR.

 

[RandallA]

The 'box' DirecTV is releasing for the 'real' DirecTV over IP service is just a little android based box, with a heavily modified software. It is about the size of a Roku or Nvidia Shield, somewhere close to that. There is no local storage on the device. The 'DVR' portion will be cloud based, not local. With a setup like that, you'll no longer have a local DVR.

I’m currently testing the “little android box” and I must say it hasn’t been a very stable device. Kept rebooting on its own, turning on the TV in the middle of the night and not finding the wireless network when turning it on. I stopped testing it for now but may try it later when they fixed those issues. The guide has the channel numbers which I like and picture quality is pretty good but no Dolby D. Directvnow on the Firetv has Dolby D.

 

[wxman2003]

Called DirecTV today after day 3 of my 7 day free trial of DirecTV now. Cancelled DirecTV and then waited to get a call back from retention, which I did, 2 hours later. My current package with taxes is $97 a month. They offered me the same package for $33 a month, for the next 12 months without a contract. On the Choice package. So will be staying with DirecTV and cancelling Now in a few days.

 

[bobvick]

I’m currently testing the “little android box” and I must say it hasn’t been a very stable device. Kept rebooting on its own, turning on the TV in the middle of the night and not finding the wireless network when turning it on. I stopped testing it for now but may try it later when they fixed those issues. The guide has the channel numbers which I like and picture quality is pretty good but no Dolby D. Directvnow on the Firetv has Dolby D.

I wonder if it will output Dolby Digital in a future software update? Surely it will if it is to be like the regular DirecTV service when it launches.

 

[RandallA]

I wonder if it will output Dolby Digital in a future software update? Surely it will if it is to be like the regular DirecTV service when it launches.

I think it will. I'm currently getting Dolby D on my FireTV with Directvnow so I think it'll be coming.

 

[RandallA]

I wonder if it will output Dolby Digital in a future software update? Surely it will if it is to be like the regular DirecTV service when it launches.

And Dolby Digital is now on. I turned it on today and it seems to be working just like it does on the FireTV.

 

[ncted]

Directv has no incentive to switch people from satellite to streaming. It doesn't cost them any less for existing customers, it will only cost them less to install new customers.

To the extent that the new IP service is priced lower than the satellite service, they would LOSE MONEY switching customers. They upgraded you because that makes you stickier as both a Directv and Uverse customer, because you must keep both to keep that unlimited data.

Seems like the incentive is to make customers stickier, like you said, and streaming probably does that at least as well if not better than satellite. Also, if you are AT&T, and you own lots, and I mean LOTS, of backbone, your own public cloud service, wireless network, etc., streaming is going to cost a lot less to operate than satellite, with its large capital infrastructure of birds, STBs that need professional installation most of the time, and operational costs of said professional installers. A relatively cheap, self-installed, streaming box with no moving parts is going to cost a lot less to support than the STBs D* customers have now. Even if you aren't AT&T, streaming costs less to deliver than cable or satellite service any more. What really matters is when they switch them so as to lose as little money on the satellite business as possible.

 

[slice1900]

Seems like the incentive is to make customers stickier, like you said, and streaming probably does that at least as well if not better than satellite. Also, if you are AT&T, and you own lots, and I mean LOTS, of backbone, your own public cloud service, wireless network, etc., streaming is going to cost a lot less to operate than satellite, with its large capital infrastructure of birds, STBs that need professional installation most of the time, and operational costs of said professional installers. A relatively cheap, self-installed, streaming box with no moving parts is going to cost a lot less to support than the STBs D* customers have now. Even if you aren't AT&T, streaming costs less to deliver than cable or satellite service any more. What really matters is when they switch them so as to lose as little money on the satellite business as possible.

It does NOT cost less to deliver streaming vs satellite to existing customers. The capital expense for the satellites in orbit are sunk costs, once they launch the satellite they've already built later this year they'll have a fleet that's good for at least a decade. The same is true for the broadcast centers that uplink to the satellites, they've already built all that so there's just the ongoing cost to staff them. Streaming needs similar broadcast centers, they have to pay CDNs (or build their own and co-locate them with all major ISPs) so I think you are underestimating the delivery cost for streaming.

The need for professional installation and a Genie mean that satellite costs comparatively much more to install, but once you are past that hurdle streaming has no advantage over satellite in operating cost. However, if Directv can bundle fiber or fixed wireless together with streaming TV, that gives it a customer retention edge over satellite. That's what they really need to fix, they want to be like cable where customer churn is lower because you save much less money by leaving just TV or just internet behind.

I wouldn't be surprised if a couple years from now when people try to cancel satellite Directv makes them an offer for three free months of AT&T 5G fixed wireless and Directv's IP product. That would be a long enough term to get them to cancel their current internet service, avoids them going elsewhere for TV, and whoever stays with them they make MORE money by selling them two products instead of one - even if the total price is higher than what the customer was paying for Directv satellite it can still be saving them plenty of money over their total internet+TV bill before. Even if the monthly cost of Directv's IP version is pretty much the same, satellite subscribers would have good reason to switch to it if they also switch to AT&T for their internet since they'd save a lot with the bundling.

 

[ncted]

It does NOT cost less to deliver streaming vs satellite to existing customers. The capital expense for the satellites in orbit are sunk costs, once they launch the satellite they've already built later this year they'll have a fleet that's good for at least a decade. The same is true for the broadcast centers that uplink to the satellites, they've already built all that so there's just the ongoing cost to staff them. Streaming needs similar broadcast centers, they have to pay CDNs (or build their own and co-locate them with all major ISPs) so I think you are underestimating the delivery cost for streaming.

The need for professional installation and a Genie mean that satellite costs comparatively much more to install, but once you are past that hurdle streaming has no advantage over satellite in operating cost. However, if Directv can bundle fiber or fixed wireless together with streaming TV, that gives it a customer retention edge over satellite. That's what they really need to fix, they want to be like cable where customer churn is lower because you save much less money by leaving just TV or just internet behind.

I wouldn't be surprised if a couple years from now when people try to cancel satellite Directv makes them an offer for three free months of AT&T 5G fixed wireless and Directv's IP product. That would be a long enough term to get them to cancel their current internet service, avoids them going elsewhere for TV, and whoever stays with them they make MORE money by selling them two products instead of one - even if the total price is higher than what the customer was paying for Directv satellite it can still be saving them plenty of money over their total internet+TV bill before. Even if the monthly cost of Directv's IP version is pretty much the same, satellite subscribers would have good reason to switch to it if they also switch to AT&T for their internet since they'd save a lot with the bundling.

I don't pretend to know the details of internal accounting at AT&T specifically, but I do know a fair bit about how capital projects work at large companies. For an item as expensive as a satellite it is not uncommon to issue bonds (debt) to pay for it. Then, whether you took on the debt or not, you amortize the capital expense over the predicted life of the asset. There are tax benefits to recognizing the cost this way, and it make the expense predictable over time. Even if the expense is below the line according to USGAAP, it is still there an impacts the cost of delivering the service to the users over the life of the satellite. Unless they just paid cash and then recognized the expense all at once, they are still "paying" for the satellite until it dies early or is fully capitalized.

Ignoring content costs or just assuming they are the same with both delivery mechanisms, streaming's initial costs are much lower than satellite, and it is a pay as you go model once you have your platform and apps built. All bandwidth and CDN contracts I have ever seen have tiered pricing. The more you use, the less you pay per TB. So, the more successful your platform is, the less it costs you per user to deliver.

If streaming doesn't costs less, then why is everyone launching streaming services?

Also, I forgot to mention, AT&T owns their own CDN. Of all the streaming services out there, their costs should be the lowest.

 

[SpaethCo]

If streaming doesn't costs less, then why is everyone launching streaming services?

To increase subscribers so they can grow the stock price. Traditional video providers have been around for a long time, they're well established. The business appeal of streaming services is that you can reach consumers who would otherwise not purchase your product, and you can use that as a pathway to grow your subscriber base. There is also an expectation that targeted real-time advertising, much like how Youtube operates today, will boost overall ad revenue for the platforms.

Also, I forgot to mention, AT&T owns their own CDN. Of all the streaming services out there, their costs should be the lowest.

DTVN and DirecTV streaming are using Akamai and Level(3) for video distribution. Just checked this again to validate -- the packet captures don't lie.

No matter who sources it, you can't compare the efficiencies of broadcast vs multicast. They beam 1 feed of HGTV up to the satellite today, they have the same operating costs whether 1 screen or 100 million screens are displaying that video content.

When you push that to the Internet, those are all unicast feeds. 100 million screens requires 100 million times more sever capacity and bandwidth than a single screen.

 

[slice1900]

I don't pretend to know the details of internal accounting at AT&T specifically, but I do know a fair bit about how capital projects work at large companies. For an item as expensive as a satellite it is not uncommon to issue bonds (debt) to pay for it. Then, whether you took on the debt or not, you amortize the capital expense over the predicted life of the asset. There are tax benefits to recognizing the cost this way, and it make the expense predictable over time. Even if the expense is below the line according to USGAAP, it is still there an impacts the cost of delivering the service to the users over the life of the satellite. Unless they just paid cash and then recognized the expense all at once, they are still "paying" for the satellite until it dies early or is fully capitalized.

They have to pay cash (50% up front, the remainder at delivery) to have the satellite built, and probably similar terms for launch, but whether they use cash from operations or issue debt they will still be amortized over time on the books (unless they happened to acquire some during one of the 'tax holidays' where they could fully depreciate a capital expense in a single year)

While they will still be taking a charge on the books for them, or possibly paying interest on debt issued to pay for them, that doesn't change the fact it is still a sunk cost. Cash has changed hands, and they can't get it back. Their satellites would have very little resale value, because their design is too specific to Directv's needs. They are very much a "use it or lose it" asset, and if they choose not to use them by shutting satellite service down prematurely they would be forced to write down their remaining book value as an impaired asset. There would be no benefit to doing so - why throw away all the profit they continue to make from satellite and will make for years to come, and lose all the negotiating leverage having the extra 19.5 million customers gives them? They would basically have to write down the entire $50 billion Directv acquisition, since all they'd have left to show for it would be the Directv name and a couple million streaming customers they are losing money on.

They are never going to come close to getting back the money they paid for it, but name one acquisition of that size that didn't require a large writedown? I can't think of one - large acquisitions are always stupid because you have to pay such a large premium over the company's real value to make it happen. Wall Street likes them because their M&A fees are percentage based. For years people have been talking about Apple buying Netflix, that would be the dumbest thing they could possibly do but Wall Street can't stop talking about it because they'd make billions!

 

[ncted]

To increase subscribers so they can grow the stock price. Traditional video providers have been around for a long time, they're well established. The business appeal of streaming services is that you can reach consumers who would otherwise not purchase your product, and you can use that as a pathway to grow your subscriber base. There is also an expectation that targeted real-time advertising, much like how Youtube operates today, will boost overall ad revenue for the platforms.

DTVN and DirecTV streaming are using Akamai and Level(3) for video distribution. Just checked this again to validate -- the packet captures don't lie.

No matter who sources it, you can't compare the efficiencies of broadcast vs multicast. They beam 1 feed of HGTV up to the satellite today, they have the same operating costs whether 1 screen or 100 million screens are displaying that video content.

When you push that to the Internet, those are all unicast feeds. 100 million screens requires 100 million times more sever capacity and bandwidth than a single screen.

That is interesting that AT&T is not using their own CDN.

Both Akamai and Level3 video distribution utilize multicast network technologies for live streaming. Between the client and the CDN servers, it is unicast, and between the origin and its closest CDN server, it is unicast, but in-between, it is not. Just like with Satellite, they only need to transcode each channel once, so the real expenses are:

1. Having enough origin bandwidth to serve the CDN (s), which is a fraction of what is needed to serve the entire audience.
2. The cost of bandwidth on the CDN(s), which consist of hundreds of thousands of servers distributed as close to the actual clients as possible.

Everyone is setting up streaming services because it is relatively easy to do so, and doesn't cost all that much up-front. Also, because it allows them to have a direct relationship with the customer, as in the case of CBS and Disney. Cut out the middle-man, so to speak.

 

[ncted]

They have to pay cash (50% up front, the remainder at delivery) to have the satellite built, and probably similar terms for launch, but whether they use cash from operations or issue debt they will still be amortized over time on the books (unless they happened to acquire some during one of the 'tax holidays' where they could fully depreciate a capital expense in a single year)

While they will still be taking a charge on the books for them, or possibly paying interest on debt issued to pay for them, that doesn't change the fact it is still a sunk cost. Cash has changed hands, and they can't get it back. Their satellites would have very little resale value, because their design is too specific to Directv's needs. They are very much a "use it or lose it" asset, and if they choose not to use them by shutting satellite service down prematurely they would be forced to write down their remaining book value as an impaired asset. There would be no benefit to doing so - why throw away all the profit they continue to make from satellite and will make for years to come, and lose all the negotiating leverage having the extra 19.5 million customers gives them? They would basically have to write down the entire $50 billion Directv acquisition, since all they'd have left to show for it would be the Directv name and a couple million streaming customers they are losing money on.

They are never going to come close to getting back the money they paid for it, but name one acquisition of that size that didn't require a large writedown? I can't think of one - large acquisitions are always stupid because you have to pay such a large premium over the company's real value to make it happen. Wall Street likes them because their M&A fees are percentage based. For years people have been talking about Apple buying Netflix, that would be the dumbest thing they could possibly do but Wall Street can't stop talking about it because they'd make billions!

Perhaps I don't understand what you mean by a sunk cost then. Yes, they have spent the money, but if they don't recognize 100% of the expense on their books at the time of purchase, it counts against their earnings as they do recognize it over time. When they calculate net earnings, they have subtract that expense from revenue just like any other expense to get their earnings number. When they look at the profit per user, they have to subtract that out.

Anyway, everything I am seeing is telling me streaming is cheaper to do than traditional Satellite, but that could be wrong. Perhaps all it comes down to is that streaming is largely opex compared to satellite's capex-intensive model, even if Satellite actually is cheaper to do at the end of the day.

 

[slice1900]

Perhaps I don't understand what you mean by a sunk cost then. Yes, they have spent the money, but if they don't recognize 100% of the expense on their books at the time of purchase, it counts against their earnings as they do recognize it over time. When they calculate net earnings, they have subtract that expense from revenue just like any other expense to get their earnings number. When they look at the profit per user, they have to subtract that out.

Anyway, everything I am seeing is telling me streaming is cheaper to do than traditional Satellite, but that could be wrong. Perhaps all it comes down to is that streaming is largely opex compared to satellite's capex-intensive model, even if Satellite actually is cheaper to do at the end of the day.

A sunk cost is something you've already paid for, or committed to pay for. If you look at earnings only from the perspective of FASB accounting, where you include soft costs like depreciation and amortization (and ignoring checks you write for principal balances on debt) you aren't seeing the whole picture. You also need to look at cash flow, where depreciation and amortization are irrelevant, but principle balance paydown on debt will be included. Any business owner knows if you show an accounting profit but have negative cash flow you aren't going to last long (this doesn't really apply to big companies like AT&T who can borrow billions, but try running a negative cash balance for multiple years as a small business owner and you won't get far) You would much rather own a business that shows an accounting loss but has a positive cash flow - in fact that's the best kind of business to own because you are adding money to your bank account and getting a tax writeoff (a lot of real estate businesses end up like this, due to their favorable tax treatment)

Anyway, those satellites cost a lot less than you might think when amortized for their whole life across all Directv's customers. I've posted these calculations several times before, but here we go again. Directv has never to my knowledge posted information about how much they paid to build/launch a satellite, but there is information out there for similar satellites, so let's say they cost $400 million to build/launch. Directv needs a fleet of five in the long run (T11, T12, T14, T15 and the to-be-launched-later-this-year T16) since they are not going to use 95/110/119 after this year. That implies a cost of $2 billion if they were going to start from scratch. They have an operational lifetime of around 20 years (they are built for 15 years, but always overbuilt and some last much longer - for example the D8 satellite recently semi-retired at 101 was launched in 2005 and Directv estimates it has fuel life until 2034, so they will probably keep it as an in orbit spare at 101 in case of catastrophe)

Anyway $2 billion for 20 years means they amortize at a rate of $100 million a year (I don't know what the IRS has them depreciate as on a tax basis, consult your local accountant ) Currently they have just under 20 million subscribers so that means each subscriber pays a grand total of $5/year for the cost of building/launching Directv's satellite fleet, or less than 50 cents a month. Now obviously as subscribers leave the per customer charge goes up, but even if they lost 80% of their subscribers and were down to 4 million that's about $2/month. Those aren't the only costs to operate their satellites, they have their broadcast centers, the equipment in them, their staffing etc. but it would be complete guesswork to try to come up with numbers for those, and a lot of that same stuff is also needed to stream to customers so it would be even further guesswork to determine how much of that to specifically allocate to satellite.

My point is that while satellites look really expensive, you are amortizing those costs over many years and across many customers, so the portion of a subscriber's monthly bill that can be pointed to and say "because satellite" is really pretty small, and while it starts to get larger if they lose a LOT of their satellite subscribers there will be a core group of satellite subscribers who are VERY sticky - because they don't have any other option due to lack of good internet access. Those core subscribers who have no other choice would be forced to accept it if the number of subscribers went down and Directv added a $5 "satellite maintenance surcharge" or whatever to pay for the cost of keeping the lights on until the satellites literally begin to fail. They don't do that now because the true surcharge would be so small, and it would piss off a lot of customers who have plenty of options. But once most of the customers with options have taken those options, they can add a fee like that (or just raise prices for other line items to the same effect)

 

[ncted]

A sunk cost is something you've already paid for, or committed to pay for. If you look at earnings only from the perspective of FASB accounting, where you include soft costs like depreciation and amortization (and ignoring checks you write for principal balances on debt) you aren't seeing the whole picture. You also need to look at cash flow, where depreciation and amortization are irrelevant, but principle balance paydown on debt will be included. Any business owner knows if you show an accounting profit but have negative cash flow you aren't going to last long (this doesn't really apply to big companies like AT&T who can borrow billions, but try running a negative cash balance for multiple years as a small business owner and you won't get far) You would much rather own a business that shows an accounting loss but has a positive cash flow - in fact that's the best kind of business to own because you are adding money to your bank account and getting a tax writeoff (a lot of real estate businesses end up like this, due to their favorable tax treatment)

Anyway, those satellites cost a lot less than you might think when amortized for their whole life across all Directv's customers. I've posted these calculations several times before, but here we go again. Directv has never to my knowledge posted information about how much they paid to build/launch a satellite, but there is information out there for similar satellites, so let's say they cost $400 million to build/launch. Directv needs a fleet of five in the long run (T11, T12, T14, T15 and the to-be-launched-later-this-year T16) since they are not going to use 95/110/119 after this year. That implies a cost of $2 billion if they were going to start from scratch. They have an operational lifetime of around 20 years (they are built for 15 years, but always overbuilt and some last much longer - for example the D8 satellite recently semi-retired at 101 was launched in 2005 and Directv estimates it has fuel life until 2034, so they will probably keep it as an in orbit spare at 101 in case of catastrophe)

Anyway $2 billion for 20 years means they amortize at a rate of $100 million a year (I don't know what the IRS has them depreciate as on a tax basis, consult your local accountant ) Currently they have just under 20 million subscribers so that means each subscriber pays a grand total of $5/year for the cost of building/launching Directv's satellite fleet, or less than 50 cents a month. Now obviously as subscribers leave the per customer charge goes up, but even if they lost 80% of their subscribers and were down to 4 million that's about $2/month. Those aren't the only costs to operate their satellites, they have their broadcast centers, the equipment in them, their staffing etc. but it would be complete guesswork to try to come up with numbers for those, and a lot of that same stuff is also needed to stream to customers so it would be even further guesswork to determine how much of that to specifically allocate to satellite.

My point is that while satellites look really expensive, you are amortizing those costs over many years and across many customers, so the portion of a subscriber's monthly bill that can be pointed to and say "because satellite" is really pretty small, and while it starts to get larger if they lose a LOT of their satellite subscribers there will be a core group of satellite subscribers who are VERY sticky - because they don't have any other option due to lack of good internet access. Those core subscribers who have no other choice would be forced to accept it if the number of subscribers went down and Directv added a $5 "satellite maintenance surcharge" or whatever to pay for the cost of keeping the lights on until the satellites literally begin to fail. They don't do that now because the true surcharge would be so small, and it would piss off a lot of customers who have plenty of options. But once most of the customers with options have taken those options, they can add a fee like that (or just raise prices for other line items to the same effect)

OK, so those numbers help a lot. Some back of the napkin calculations tell me that 19 million streaming subscribers would cost way more than that - at least an order of magnitude more, assuming cost-per-TB pricing less than half of the absolute best CDN live streaming pricing I've ever seen. You have convinced me. This would seem to indicate that streaming costs are going to go up just like cable and satellite as soon as there is critical mass.

 

[slice1900]

OK, so those numbers help a lot. Some back of the napkin calculations tell me that 19 million streaming subscribers would cost way more than that - at least an order of magnitude more, assuming cost-per-TB pricing less than half of the absolute best CDN live streaming pricing I've ever seen. You have convinced me. This would seem to indicate that streaming costs are going to go up just like cable and satellite as soon as there is critical mass.

I don't know much of anything about the pricing for millions of CDN endpoints like that, so if you could share your math like I did it would help the rest of us understand the numbers. Obviously stuff like that is subject to change since the technology marches on, but even as a snapshot of "the situation in early 2019" it would be valuable.

Which brings up my next point - what would that same pricing have been five years ago, or ten years ago? It would have been MUCH higher, like ridiculously so, because technology improvements have made it a lot more efficient to deliver on that scale than it used to be. Now extrapolate to what that pricing will be five years from now, and ten years from now.

Using your numbers, Directv would be insane to convert 19 million satellite subscribers to streaming overnight. But they aren't doing that, they are going to offer an IP based version of Directv side by side with the satellite product, and IP customers will be added and satellite customers will be lost, over a period of years. Over time the price of streaming will fall (because technology will keep improving) and the price of satellite will rise (on a per customer basis, because there will be fewer satellite customers to share the burden)

With the per user price of IP delivery falling, and the per user price of satellite delivery rising, at some point in the 2020s a crossover will occur where IP delivery becomes cheaper. Then it will not only be cheaper for Directv to sign up an IP customer, but cheaper to maintain them as a customer, and that's around the time they'd want to start putting a surcharge on satellite customers.