Signs of the Video Armageddon
It all depends on what Verizon has in mind here, but signs of a video Armageddon are upon us.
If it's another Netflix-type offering with on-demand content, then, sure, Netflix should be worried. If it's the delivery of that, plus some live TV channels and a TV Everywhere component, then that should concern everyone else, including the satellite TV guys and the cable MSOs.
And if those guys get worried, then rest assured they'll speed up their own efforts to counter it, despite some recent posturing at Comcast Corp. (Nasdaq: CMCSA, CMCSK) that delivering services OTT and out-of-footprint isn't economical. (See Comcast Won't Go Over the Top.)
Cable's losing video subs, and the satellite guys are losing them or seeing subscriber additions slow down, at least domestically. And the long-term future of U-verse and FiOS TV can't be all rainbows and unicorns, either. The beast must be fed. And when the beast begins to starve in its own territory, it's forced to look elsewhere for good hunting.
Verizon already secured some rights to offer some of its FiOS TV lineup on the Microsoft Corp. (Nasdaq: MSFT) Xbox 360. That's an in-market play that's got some gee-whiz to it. If it can obtain similar rights to take that sort of thing out-of-market, then it might really be onto something. But that's a Texas-sized if. (See Verizon Takes FiOS TV to the Xbox.)
Verizon President and CEO Lowell McAdam did little at this week's UBS AG investors conference to cause MSOs to shift to Defcon 1. After all, cable's his friend now. (See Verizon Wireless: Cable’s New BFF.)
"I think the jury is out, but I do think there is a place for over-the-top here, and it will be part of our strategy," he said. Later, he stressed that OTT isn't a 100 percent replacement of linear video, or at least it won't be for "many years." For now, OTT is "complementary" to FiOS TV.
But Verizon's far from the only company thinking about its OTT future and starting to do something about it. At The Cable Show, EchoStar Corp. LLC (Nasdaq: SATS) VP of Sales and Marketing Michael Hawkey discussed a budding full-service, completely hosted OTT offering his company is putting together for all manner of service providers. They're talking about delivering linear TV and on-demand video by using adaptive bit rate techniques, coupled with a network DVR. And that's not just for set-tops and smart TVs, but for tablets, smartphones and just about any IP-connected display. In-market. Out-of-market. Do your worst. (See EchoStar Sets Sights on a Network DVR .)
"This is a very compelling service on a 10Mbit/s system," Hawkey told me.
So, this sets things up for the rise of the virtual MSO, right? Well, not so fast. The rub is that EchoStar has the transport rights, but it's up to the service provider to obtain the affiliate rights. "The service comes down to the rights question," Hawkey readily admits.
And that's not a trivial thing. Ask Netflix about how important rights are now that it's going to lose the right to offer Starz Entertainment LLC content next March. Comcast owns NBCUniversal LLC now. Getting out-of-footprint rights isn't a shoo-in, necessarily, but it's hard to imagine that it will somehow be more difficult now for Comcast to negotiate those rights.
We'll learn more about Verizon's OTT play in the weeks and months ahead, but I'd have to guess that it won't bolt from the blocks with a well-rounded offering that would cause the pay-TV market to shudder with fear.
Instead, I think it will be Netflix-ian, with Verizon trying to squeeze as much premium content as it can so it can offer some semblance of differentiation. It won't be perfect. Maybe it will be a loss-leader. But it will start to arm Verizon for the war to come, when everyone starts going over-the-top.
When will that be? When the programmers say so, and not a moment sooner.
— Jeff Baumgartner, Site Editor, Light Reading Cable