On Tuesday 16 May, AT&T announced that it is acquiring its long-term business partner and technology supplier, the Toronto-based Quickplay Media, with terms undisclosed. Quickplay is one of the leading video streaming platforms that counts among its customers AT&T’s TV Everywhere offering U-verse.

With the long standing cooperation in place, our first question is: why acquisition?

Normally acquisition cases like this would serve two purposes: either to lock out competition from accessing the unique technology, or to improve control over the strategic focuses of the acquisition target to serve the buying partner better. We do not believe the purpose of the Quickplay acquisition is to deprive its competition, e.g. Verizon which is also a Quickplay customer, of the technology to power their respective video streaming service. This is not only because AT&T explicitly says that Quickplay’s operation will remain independent and it will continue to serve its current clients as well as keep expanding, but also because there are other suppliers in the market that could fill the (hypothetical) gap, e.g. mobiTV, Imagine Communications,  aioTV, to name but a few.

Instead, we see this deal a good fit for AT&T’s new video service strategy expanding from linear TV to OTT services.

We highlighted that the content rights for mobile delivery secured by DIRECTV are an advantage for AT&T when it comes to OTT services. However premium content rights alone are not enough for AT&T’s OTT service offerings to be competitive when they launch in Q4 this year. While DIRECTV Now is a more straightforward multiscreen play, DIRECTV Mobile and in particular DIRECTV Preview are more geared towards the needs of the millennials who watch a lot of videos, especially short form videos, on the go but are unwilling to pay for premium content. This is potentially an area that AT&T would steer Quickplay’s strategic focus when the deal goes through from delivering premium content to delivering mobile first and ad-funded content, to support AT&T’s new OTT strategy. As John Stankey, CEO of AT&T’s Entertainment Group has stated “These new video subscription models reflect the flexible content choices, viewing options and simple, transparent pricing that consumers want. AT&T intends to be the first company to deliver that flexibility, along with an effortless customer experience.” As a matter of fact, adding Quickplay to its existing assets, it appears to analysts at Strategy Analytics that AT&T is building a platform to not only deliver DIRECTV’s new OTT services but other 3rd-party OTT services, competing with Akamai, Verizon Digital Media Services, Brightcove, etc..

Also interesting to recall is that a year ago Quickplay acquired the LTE Broadcast software company Roundbox. Though LTE Broadcast may not be a major business case in short-term, AT&T is one of the leading mobile operators that has trialed LTE Broadcast and must have seen the capability to provide technology for both IP-based video streaming and LTE multicast as a bonus.

Another advantage that Quickplay brings to the party is its global footprint. Although AT&T is serving business customers globally including an extensive customer base in Asia, its consumer service is mainly focused in the US with limited presence in Mexico. DIRECTV’s customer base is in the US and Latin America.  Meanwhile, Quickplay’s customer list, in addition to AT&T, also includes other telcos like Verizon, Canada’s Rogers, Bell and Telus, and the UK’s Vodafone (which AT&T famously did not acquire back in 2014). It is also serving companies like Samsung as well as media companies HOOQ (a joint-venture of which Singtel is a partner) and Bloomberg Television. Its global and cross-sector reach will be a strong support to AT&T’s and DIRECTV’s global expansion, when that ambition is rekindled.

The next question is how much impact this acquisition will have on the market. To start with, DIRECTV’s OTT offerings are likely to become more formidable competitors to services like Verizon’s Go90 more quickly, assuming it is going to be supported by Quickplay’s more focused strategy. Meanwhile companies like mobiTV may see the deal as positive to their business prospect. Even if AT&T could keep Quickplay’s operation at arm’s length, its direct competitors will likely start looking to diversify its technology suppliers soon.