The short answer is that locals are expensive. Comcast charges their cable TV subscribers $10/mo for them. Charter charges even more. They've increased their broadcast TV fee covering locals three times now in the last year, from $9 to $10, then to $12, and next month to $13.50/mo. And those are the two largest cable operators in the nation. Smaller operators probably negotiated even higher rates with all those local station owners (Sinclair, Nexstar, etc., along with the 4 major networks themselves which own their largest market affiliates). And cable TV services -- whether cable, telco, satellite or streaming -- always seem to be in a renegotiation standoff with one of those local station groups, resulting in a blackout that interrupts service on one of the channels their customers watch the most.
So if you're looking to cut costs from a pay TV bill, and take back some negotiating power with the locals, it makes sense for a pay TV provider to offer a low-cost package that simply doesn't include any locals at all and allow those customers who want them to integrate them for free using an OTA antenna. DirecTV already sends out a free tuner that plugs into the back of their Genie DVRs when a local station is blacked out. Why couldn't they include such tuners for free (or for a small fee) to customers who signed up for a new Starter package that doesn't include locals? Same holds true on AT&T TV (although in that case, the tuner would likely look more like Sling's AirTV tuner that plugs into your home's wifi network).
Of course, if you don't include ABC's, CBS's, NBC's and Fox's major market affiliates that they directly own in places like NYC, LA, Chicago, Philly, Washington, etc., then they're not going to let you include any of their cable channels in that package either. So no ESPN or Disney, no Fox News or FS1, no USA or MSNBC. But then sports channels (and Fox News) are the most expensive cable channels to carry anyhow. So by excluding all that stuff, and locals too, you can end up with a $20 service like Philo or a $15 service like AT&T Watch TV.
If AT&T took their Watch TV package and made it a Starter package in AT&T TV, no one -- not AT&T nor the major network owners -- would expect it to be that service's most popular package. No, it would just be a cheap alternative for folks who either didn't care about their locals or could use an OTA antenna, and who also didn't care about sports and news channels (other than CNN and BBC World News). The mainstream package that AT&T TV would mainly steer customers toward would be the Plus package, which does carry locals plus the most popular sports, news and entertainment cable channels.
