- Verizon Communications Inc. (NYSE: VZ) and
AT&T Inc. (NYSE: T) say they are committing a combined $22.5 billion in funding to build out FiOS and U-Verse, their respective fiber networks.
- At the end of 2006, Verizon had 207,000 customers for its FiOS video service, with a total of 2.4 million homes now "open for sale" for Verizon video.
- Verizon expects to break into the ranks of the top ten U.S. video service providers by the end of this year.
A huge factor in the telcos' success (or failure) in the consumer entertainment market will be the ability to deliver high-quality, exclusive content. And sports content is sure to be one of the most important differentiators for digital content providers – as detailed in the latest Heavy Reading report, "Digital Content in the Telecom Ecosystem: The Sports Factor."
Dating back to the original "new media" – broadcast radio – sports content has played a huge part in service development and revenue growth. Sporting events were instrumental in driving demand for the next new media – TV – and its subsequent iterations (cable TV, pay TV, and direct broadcast satellite). Sports content dominated the first-generation commercial Internet, and it primed to do the same for Internet 2.0.
What are today's new media? They are:
- IPTV to the TV/set-top box
- Internet TV (to the PC)
- Mobile TV
- Video on demand and the proliferation of time-shifted television
North American professional sports leagues and franchises are very much at the cutting edge of moving to these new media, and the telcos are in a unique position to move forward right along with them.
The biggest advantage that telcos hold over the entertainment incumbents – cable and satellite providers – is that the telcos are not the incumbents. They are thus much freer to innovate alongside the content owners, whereas the cable and satellite providers are confined. This advantage, if telcos can fully take advantage of it, will be the key to differentiation.
Again, let's take a closer look at sports for some examples. TV rights are the foundation of the industry. Networks such as CBS, NBC, and ESPN pay billions to the NFL, MLB, NBA, and other leagues for the rights to sports programming. Cable and satellite distributors, such as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), or DirecTV Group Inc. (NYSE: DTV), then pay billions for the rights to air the programming – which in turn is key to securing the subscribers and revenues their business models demand. With so much money at stake for distributors in fees to programmers and revenues from subscribers, there is little incentive and a whole lot of risk in shaking up the established model.
Enter the telcos. They can pay $700 million for exclusive rights to sports programming (which is what satellite provider DirecTV appears to be paying for exclusive rights to MLB's "Extra Innings"). Or they can embrace the new media arms of the sports leagues and create some truly differentiated and unique content. We are now starting to see this approach, though it's early days for sure.
- One example is Verizon's FiOS broadband deal with the NFL, announced in December 2006, under which Verizon offers live Internet streaming of NFL Network games to Verizon FiOS customers. The deal marks a big change in strategy for the NFL – which has, until now, only offered live games on the Internet to fans living outside of North America. And is it also a coup for Verizon, as it makes the telco the first Internet service provider to stream NFL games to U.S. subscribers via broadband.
- Another example of telcos embracing new media is AT&T's Broadband TV service, launched in September 2006, in partnership with MobiTV Inc. AT&T Broadband TV streams video content to users' PCs and includes 30 channels of various content – including Fox Sports, Union (covering sports such as surfing, skating, snowboarding, BMX, and motocross), and MAXX Sports – for $19.99 per month.
The telcos are still going to focus heavily on building up their table-stakes lineups of programming, and will have to pay heavily for it. After all, it's difficult to have a valid TV offering without ESPN, Fox Sports, and regional sports programming such as YES Network. However, it would be a mistake not to exploit the advantages and differentiation that new media will offer. And based on our interviews and recent developments we've seen, we believe the big leagues and the teams within them will be very willing partners for the telcos in their entertainment quest.
— Sterling Perrin, Senior Analyst, Heavy Reading