AT&T creates $500M joint venture for a Netflix-style TV service

Photo from Thinkstock/Oleksiy Mark

AT&T, the nation’s second largest broadband provider and wireless company, is getting into the streaming business with a $500 million joint venture created to acquire, invest in and launch a Netflix-style video streaming service. As the television distribution model that’s been in place for decades collapses online, this deal marks the first time a big U.S. ISP has decided to go over the top with a TV service.

AT&T has joined forces with media and entertainment company the Chernin Group, and together the two companies have committed $500 million in funding to the venture. More detailed financial terms of the transaction have not been disclosed. However, the Chernin Group will bring assets to the venture, including the contribution of its majority stake in Crunchyroll, a subscription video on demand service.

From the press release, it is unclear exactly what type of content the joint venture hopes to offer. The Crunchyroll content is mentioned in the release, and Chernin has a quote that seems to indicate this is about providing more content outside of the traditional broadcast options. From the release:

“‘A critical part of The Chernin Group’s strategy has been our significant focus on the online video industry, and joining forces with AT&T only further underscores our strategic commitment in this area as operators, investors and programmers,’ said Peter Chernin, Chairman and CEO, The Chernin Group. ‘Consumers are increasingly viewing video content on their phones, tablets, computers, game consoles and connected TVs on mobile and broadband networks. AT&T’s massive reach on those platforms across mobile and broadband and their commitment to the online video space make them the perfect fit for this venture with us.'”

If done well, this joint venture is a significant move and could break down the geographical barriers for buying pay TV. If the content is robust enough on the AT&T effort, Comcast subscribers or FiOS pay TV subscribers might elect to choose the AT&T offering instead, destroying the triple play bundle and throwing content companies into a tailspin.

If the venture is done poorly, or with a lack of compelling content, the new offering will join a crowded field of big over-the-top providers and perhaps help drive up up content acquisition costs. This might validate Netflix, Amazon’s Prime Instant Video and YouTube’s efforts, but it’s also a big new player to look out for.

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