Verizon Plans to Launch OTT Streaming Video Service by 2015

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

 

AT&T Head to Head with Time Warner Cable

AT&T is in advanced talks to acquire DirecTV, the U.S.’s largest satellite television provider, for about US $50 billion, according to a report. Under the plan being discussed, the current management of DirecTV will continue to run the company as a unit of AT&T, while DirecTV CEO Mike White plans to retire after 2015. The two companies are still negotiating a price, which could come close to US $95 a share, depending on the proportions of cash and stock in the transaction. Also on the table is the size of the termination fee to be paid in the event that regulatory approval is not granted. An agreement between the two companies is said to be one to two weeks away from completion.  DirecTV’s rival Dish Network had previously considered a merger, but Dish chairman Charlie Ergen recently said he thought DirecTV was too expensive to pursue. This deal would have a substantial impact on the pay-TV landscape in the U.S., comparable to that of the pending Comcast–Time Warner Cable merger. It certainly underscores the fact that combined services (phone, broadband internet, TV and mobile services) are the wave of the future for telecom providers and entertainment content providers alike. AT&T has already made a foray into TV with its IP-based U-verse streaming TV service; now, by acquiring the country’s largest satellite-TV provider, it would gain a national footprint, placing itself in a very strong position to take advantage of the public’s growing appetite for pay-TV and the increased range of choices it offers. Furthermore, because DirecTV is already operating in Latin America, the deal would extend AT&T’s TV range beyond the U.S. As for DirecTV, we believe it would gain significant competitive advantage for the future by being combined with internet services instead of offering a stand-alone product. Of course, everything depends on whether this deal receives regulatory approval, a process that could take up to a year. The FCC will be considering the Comcast–Time Warner and AT&T–DirecTV deals simultaneously. If both deals are approved, the two combined entities will go head to head in competition, and it does seem more likely that both or neither will go through than that the FCC would allow one and not the other.  The above item appeared in a recent issue of Tarifica's "The Story of The Week", a weekly report that analyzes two noteworthy developments in the telecoms industry from around the world. For past issues or to learn more about The Story of The Week :  http://www.tarifica.com/storyoftheweek.aspx