While HBO was an obvious prize in AT&T's (NYSE: T) $85 billion purchase of Time Warner, the company also gained control of another brand that could become a streaming giant. The wireless, cable, satellite, and (now) media giant now also owns DC Comics and its upcoming DC Universe streaming service.
That might not sound like a big deal, but Walt Disney's (NYSE: DIS) Marvel brand has been a key component of Netflix (NASDAQ: NFLX), with Daredevil, Jessica Jones, Luke Cage, The Defenders, Iron Fist and The Punisher all being successful. And it will ultimately be a key part of Disney's upcoming streaming service.
DC may not have found Marvel's level of success at the movies, but the comics company has a deep roster of both well-known and lesser-known characters. And, while movies like Batman v Superman: Dawn of Justice and Justice League were not well-received by critics or some fans, they did gross $873 million and $657 million respectively.
What is DC doing?
Instead of using DC characters and shows to launch a broader streaming service, as Disney is doing with Marvel (and Star Wars and Pixar), AT&T's Time Warner is building a DC-exclusive streaming product called DC Universe. This isn't an attempt to be everything to everyone; instead, it's an effort to reach fans of the DC characters.
The service will offer access to digital comic books, merchandise, and other fan exclusives, but its key draw will be its mix of live-action and animated TV shows. These include a live-action version of Titans, an animated Harley Quinn series, and a revival of Young Justice.
These titles -- along with Doom Patrol and Swamp Thing -- may not mean much to non-fans, but they will be as must-see as Netflix's Marvel shows as long as they are well-executed. A strong lineup of original shows, plus a low introductory price ($7.99 a month, with three months free for anyone paying for a year in advance before the launch), should make this a high-demand service for DC fans.
Will it work?
DC Universe won't deliver Netflix-like numbers. It may, however, be able to capture a few million paying subscribers in the U.S. when it launches, and grow that significantly as it expands around the world. If you assume the company can reach 2.5 million paying monthly customers at $7.99 a month, that's $19,975,000 in subscriber revenue each month, or $239.7 million per year.
That's a rounding error for a company that did $39 billion in revenue last quarter, but grow the number of subscribers to 10 million -- a plausible figure, given the family-friendly skew of many DC properties and their global recognition -- and you have a $1 billion business.
You also have a product that can be used the way AT&T uses DIRECTV's satellite and streaming services, to make other products more exciting. In addition to being a video platform, DC Universe will also be a direct sales channel to the brand's biggest fans. That could help drive awareness for new movies and products, and, of course, move a lot of exclusive merchandise.
Costs should be manageable
Netflix faces a challenge: It has to keep cranking out hit shows to meet very diverse tastes. That's expensive, and explains why the company burns cash despite closing its most recent quarter with over 124 million subscribers.
DC Universe won't have that problem. It does have to create new content, but it knows its audience. Add a handful of new shows a year -- maybe six to eight -- along with the deep archive that will be housed on the service, and fans of the comic-book universe (especially those with kids) will likely see $7.99 per month as a reasonable investment.
DC has shown that it can do TV well. Shows like Flash, Green Arrow, Legends of Tomorrow, and Supergirl are hits (albeit hits by the standard of the CW). Those series, along with DC's many well-loved animated series that have aired in various places, prove there is an audience for this content.
It's a crowded field
Upon launch, DC Universe would already have more originals I want to watch than Hulu or Amazon Prime. That's probably true for many fans of the comic-book-to-TV genre. And the new DC service won't have to do much to sell its potential audience on these shows, because to the target audience, these are familiar properties.
That should probably be enough to get the service noticed in a field where the clear leader is Netflix, but everyone else is fighting for audience. DC Universe has properties that people will want to see and shows that will appeal to multiple generations. As cord-cutting grows and spending on streaming services increases, this product should be well-positioned to give AT&T another thriving business.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends AMZN, Netflix, and Walt Disney. The Motley Fool has a disclosure policy.