That’s the question on the table in telco front offices as executives weigh the changes sweeping the TV services industry. Whatever the business is evolving toward, it’s a long way from the business they were looking at when they began publicly discussing plans to take the plunge back into video seven years ago.
For the major players, AT&T and Verizon, the questions revolve around the fact that, on the one hand, their TV operations have become too big to simply walk away from. Yet they find themselves locked into territorial limitations and corporate mindsets that are not necessarily conducive to the all-in strategies that are part and parcel of the leading cable and satellite companies’ approaches. Where the TV service guys in the latter organizations rule the roost, they’re fairly low on the totem poles at the telcos.
Since June 2004, when then SBC CEO Edward Whitacre, Jr.announced his company’s IPTV plans, telcos have seen the wireless sides of their business rise to dominance as wireline has faltered with heavy losses to cable and mobile in telephony and less than stellar broadband performance against aggressive cable competitors. While their TV businesses have grown to respectable levels of penetration in the market they serve, Verizon, with 3.5 million FiOS TV subscribers as of the end of Q1, and AT&T, with 3.2 million, only rank number seven and nine, respectively, among the top MVPDs (multichannel video programming distributors) in the U.S.
At something on the order of $4 billion in TV service revenues at each company last year, the business is small potatoes against total revenues of $124.3 billion in AT&T’s case and $106.6 billion in Verizon’s. Wireless service revenues were $58.5 billion and $55.6 billion, respectively.
Which brings us to the implications of having nationwide broadband wireless footprints, especially as 4G takes hold. Both companies face major decisions as to where they’re going with entertainment services now that multi-screen convergence and the growing presence of over-the-top accessed TV have become dominant themes of the subscription TV business. The opportunities to break out of the territorial restrictions that put them in a secondary position against cable competitors in their local markets are vast.
“We see the opportunities in advertising, mobile-fixed convergence and OTT,” says a senior strategist at one of the major telcos, speaking on background. “There’s no denying it’s huge. The real question is whether we have the corporate culture to take the business where it wants to go. Do we go out and buy a studio like Comcast did? That’s the kind of thing we’re asking ourselves.”
Either company could establish a national footprint for branded entertainment services by leveraging 3G and 4G wireless reach in conjunction with unmanaged fixed service delivered over the top. Verizon’s vice president of product management Eric Bruno, in an interview appearing in the January issue, made clear Verizon is “absolutely” looking at making its FiOS Flex View TV Everywhere service available to non-FiOS subscribers out of territory. Sources say AT&T is weighing the same question with U-verse.
But there are licensing issues that may raise internal debate over who will drive the business. At one of the companies uncertainty over what level of participation the mobile side wants to have in building a video business has held up negotiations on fixed service licenses for TV Everywhere, owing to fears that the costly licensing fees resulting from the smaller fixed service footprint will set a bad precedent for negotiating from the wireless side.
Adding to the complications is the fact that any national play in the video space necessarily creates an opportunity, even an imperative, to mount a multi-screen advertising effort to help drive ROI on the expanded business. Here again the makeup of the companies is not exactly a fit for a national advertising push.
“We have an opportunity to be major players in this space or to continue to chug along as second tier players with encroachments from OTT competitors on top of all the other competition,” says the senior executive quoted earlier. “It’s a tough decision.”