Verizon’s Video Growth Path Could Include Play in OTT TV

Terry Denson, VP, programming & marketing, Verizon FiOS TV

Terry Denson, VP, programming & marketing, Verizon FiOS TV

July 14, 2010 – With its FiOS TV service now at 25 percent penetration of homes passed, Verizon Communications is looking at new ways to grow the video business, including the possibility of a play in over-the-top TV as well as closer integration of its fixed and mobile video services.

While the company hasn’t committed publicly to any strategic details along these lines, the possibilities loom large as new developments continue to roil the subscription TV market. Enabling FiOS TV subscribers to place shift content from TV or PC to mobile is definitely a part of the carrier’s road map albeit with no set timeline as yet. Whether and how the carrier might exploit OTT as a way to extend its TV reach out of territory is far less certain.

Asked whether Verizon would consider going out of territory with a service offering over broadband links to connected TVs, Terry Denson, vice president of programming and marketing, replies, “Sure. I think it’s really about business models and revenue streams.”

As a facilities-based provider, the company looks at one type of business model and revenue stream built on subscriptions, Denson explains. “But at the same time,” he adds, “if you’re not going to be facilities based, which is effectively [the case with] most over-the-top providers of content, you’re going to look at a different kind of model and a different kind of expectation, a different sort of relationship with your customers.

“So I don’t think there’s anything that’s mutually exclusive,” he continues. “It’s really about winning market share and being able to develop products with which you can create new markets, which would be an ideal scenario, because it’s a pretty crowded market as it stands today.”

This doesn’t mean, Denson hastens to add, that Verizon wants to do anything to undermine the existing facilities-based business model, any more than programmers who rely on those subscription revenues want to cause it damage. But while preserving the current model is essential, there’s no denying that OTT adds a new dimension with a momentum that makes it difficult to predict where the equilibrium between OTT and traditional subscription TV will come out over time.

“The fact that there’s going to be over-the-top providers out there that are trying to get to the living room – does that pose a threat?” Denson asks. “Well, it absolutely poses a threat. Is that something we want to participate in? The question is only if we can get meaningful market share.”

When it comes to place shifting, the timing as to when Verizon might enable subscribers to seamlessly go from watching a program on TV to picking up the program on mobile really depends on how fast long-form viewing of video on mobile moves into the mainstream, Denson says. “Eventually consumer behavior over the next three to five years will be at a point where it will be commonplace to consume meaningful amounts of content…in terms of orders and streams on a mobile device,” he says.

With over 30 million video-enabled handsets deployed to Verizon Wireless users and its Vcast mobile video service in play nationwide, the carrier is well positioned to know when the market will be ready for this next step. “With Vcast we have over 300 long-form series,” he says. “We’ve got all 64 games of the World Cup exclusive to us in Spanish; we have over 40 games in English via ESPN. We recently signed a deal with the NFL. We’re going to have live NFL Sunday night football games. We’ll have live NFL Thursday and Saturday night football games from their Eight-Game package. Last year we had college football from each of the major distributors.”

Meanwhile, as Verizon contemplates future moves it’s pushing ahead aggressively with extension of access to its service through authentication of FiOS TV subscribers for viewing content on PCs. The carrier’s variation on cable’s TV Everywhere strategy has been a serial introduction of content to authenticated subscribers dating back several years when it brought ESPN 360 (now ESPN3) into play, Denson notes.

“Other people call it TV Everywhere; for us it’s really authenticated content,” he says, citing Starz Play, Epix, HBO Go and Yankees on Yes Broadband as other examples of the expanding authenticated broadband programming agenda. “We recently announced an agreement with Turner to launch a significant amount of their content in an authenticated environment,” he adds.

Such capabilities are really an extension of video-on-demand services, which Denson describes as one of the five pillars to the foundation Verizon is building to make FiOS TV successful against entrenched competitors. “Video on demand as a content discipline initially started off as a strong retention tool, but now it’s quickly becoming an acquisition tool,” he says. “So it’s important for us to be known as the market leaders.”

The same goes for the other pillars where Verizon aspires to be or already claims to be the market leader, including HD content, sports content, movies and multi-cultural programming. Although Verizon is continually introducing advanced applications, such as Yahoo! Widgets, TV remote control functionalities for the iPhone and social networking on the TV, it does not yet view these as keys to customer acquisition, Denson notes.

Such innovations, he says, “are about demonstrating to consumers, to the marketplace, to third parties, to developers that we do have a dynamic network and that the deployed innovation there is a place where we want other parties to come in and show us all the opportunities we may have with respect to capturing aspirations of customers.” And there’s also a long-term marketing benefit to be accrued from early introduction of these innovations.

“Am I going to win a customer from Comcast because you can program your remote on your iPhone or your Joy device?” he asks. “The answer is, probably not. However, there is something about just the perception of being a leader in the marketplace, a leader in innovation, and if you establish that perception and that reputation, then as you do introduce products that actually do matter to them more, and even if your competition provides those same products, the customers will give us the benefit of the doubt and say, you know what, Verizon’s does it better.”

This incremental approach to leading customers to ever more engagement as they’re ready for those next steps is key to everything Verizon is doing with FiOS TV. “First you have to have a platform that can support leadership in all of those tenants,” Denson says. “So a customer who comes over to us because we have the most sports content is going to be more likely to actually purchase Yankees on Yes Broadband.

“Then that allows us to establish market leadership in broadband authenticated content in an area where others are going to suffer, because we’ve cornered the market on the sports fan,” he continues. “And then once you move up into an authenticated environment for content, you look for the next level of customer aspiration. The next level of customer aspiration is going to be some version of being able to capture content on the move.”