Speaking at Goldman Sachs’ Communacopia Conference, Lowell McAdam, CEO of U.S. mobile and fixed operator Verizon, stated that the company plans to introduce an OTT digital video service by mid-2015. The service will directly compete with the likes of Netflix, Hulu and Amazon’s Prime in the U. S.’ crowded streaming video field. Besides the impending entry of Verizon, this market is expected to become even more competitive in coming years, with both Sony and satellite provider DISH Network planning their own services.
The new entrants in the digital content sector are largely drawn by a desire to capture the business of cord-cutting millennial consumers, who have tended to rely on streaming options rather than purchasing cable service, as past generations had. As these younger consumers begin to make up an increasing proportion of heads of households, designing packages that meet their expectations will become more crucial. A major, and possibly imminent, effect of this shift in the industry will be the likely decline in “all-included” cable television packages. Currently in the U.S., most fixed line providers offer a bundle that includes broadband internet, land-line service and a TV package that can include upwards of 300 channels. The inflexibility of this arrangement has long drawn criticism from consumers, who often only watch a small percentage of the channels to which they are subscribed. While these complaints have long been lodged against cable operators to no avail, operators are now scrambling to react because consumers have found another avenue for instant video content—the internet. Of this changeover, McAdam said, “No one wants to have 300 channels on your wireless device. I think everyone understands that it will go à la carte. The question is what this transition will look like.”
Despite the many competitors it will face, Verizon has several built-in advantages that could lead to success in this emerging field. First, the company already provides internet, TV and/or land-line service to 70 million US households. As such, it has the billing, customer service and marketing infrastructure in place to successfully roll out a new service on a broad scale. Second, and more important, Verizon can likely secure the digital distribution rights to some of the most valuable properties that have thus far eluded the likes of Netflix—live content, particularly sports. Even Netflix’s most recent deal with Fox (one of the major U.S. networks), has a one-year delay before the network’s content is available for streaming, with the service acting as an alternative to or an augmentation of the traditional syndication structure. Through its current cable television offerings, Verizon has in place the relationships with networks and the resources to expand distribution to its new OTT service. The greatest challenge to the operator in this field may be adapting culturally to the expectation of rapid change; companies like Netflix are constantly adjusting their offerings based on customer data. If Verizon is able to clear this hurdle, it will be well positioned to thrive on the frontier of content distribution.
The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues: http://www.tarifica.com/TarificaAlert.aspx