AT&T's new internet-based TV service won't slow consumer cord-cutting

AT&T launched AT&T TV this week, an internet-based TV service that is more operationally efficient than DirecTV, but which largely relies on the same business model. The service offers many features familiar to cable subscribers: a 500-hour DVR, a remote that comes with Google Assistant, four available tiers of channel lineups.

The company indicated that AT&T TV will eventually supersede DirecTV and U-Verse as the company's flagship TV service. Like those services, AT&T TV can be bundled with home internet for a discount. AT&T is offering lower introductory prices to induce consumers to switch to the internet-based service, though the rates nearly double after 12 months, according to Variety.

AT&T TV will reduce the company's reliance on costly satellite operations, which will also expand revenue opportunities. When AT&T acquired DirecTV for $49 billion in 2015, it inherited not only millions of subscribers, but also sprawling infrastructure associated with what has become an outmoded system of satellite-based TV.

AT&T TV instead streams via home internet - this reduces AT&T's reliance on both the overarching satellite infrastructure and the associated costs of servicing and installing home TV dishes. The lower servicing load for internet-based TV will reduce the cost of toggling service on and off, so AT&T could experiment with trial offers or shorter-term contracts.

Additionally, investment in expanding high-speed internet access will generate higher returns, expanding the target market of consumers for both home internet and AT&T TV service. Finally, because AT&T TV runs native over the internet, it will be easier for the company to build a user experience that flows between platforms, including over its home and mobile internet services.

While AT&T TV represents a step in the right direction, it does not adequately address the factors leading customers to drop traditional TV services. AT&T lost 3.4 million traditional video subscribers in 2019, representing a 19% decrease year-over-year (YoY).

This reflects a broader decline in network operators' role as conduits for media services. Media companies are increasingly going direct to consumers through internet services - Netflix, Amazon Prime Video, Apple TV+, and others are often cheaper and more desired than traditional TV.

AT&T TV emulates certain features of these challenger services, but it doesn't go nearly far enough, as it still relies on antiquated business practices such as locking consumers into two-year contracts, steering them to bundled services, charging based on lumped tiers of channel lineups, and imposing early termination fees. That doesn't mean, however, that AT&T must adhere to this model: The switch to internet-based service gives the company greater flexibility to iterate and experiment with new practices, such as removing the aforementioned contract restrictions or further emphasizing on-demand content.