Thin is in for pay-TV. Even as FiOS growth slowed in the second quarter, demand for Verizon's new Custom TV packages grew at an unexpected rate, with more than a third of new customers opting for a skinny bundle over traditional FiOS TV service.
Verizon Communications Inc. (NYSE: VZ) reported a significant dip in FiOS growth for the second quarter, adding only 26,000 video subscribers and 72,000 Internet subscribers compared to gains of 90,000 and 133,000 in the previous quarter. (See Verizon Posts Q2 Profit of $4.23B and Verizon Trumpets Network Densification Plans.)
Notably, first-quarter growth had already slipped compared to gains in the latter half of 2014, reflecting a fairly steady downward trend in subscriber growth rates. Verizon blamed changes to its triple-play service offerings and increased competition for the latest slump.
For the first time in recent memory, Verizon's overall broadband numbers also fell into negative territory in Q2, with a loss of 25,000 subscribers. Smaller gains on the FiOS front couldn't overcome larger losses among DSL customers.
Even with slowing FiOS growth, Verizon was still able to pull in higher consumer wireline revenues, reporting an increase of nearly 10% year over year. Total consumer wireline revenues rose to slightly above $4 billion in the second quarter, with FiOS revenues accounting for $3.4 billion out of that amount. FiOS subscriber totals now stand at 5.8 million customers for video, and 6.8 million customers for broadband. Verizon also boasts 4.7 million FiOS digital voice connections, a number that has remained more or less flat for the last three quarters.
Verizon's success with new Custom TV packages adds an interesting wrinkle to its residential video business. With a baseline price of $55 per month, the new skinny bundles should inevitably start to dent top-line revenues. Verizon CFO Fran Shammo acknowledged that fact in today's earnings call, but he also suggested that profitability would increase in the longer term thanks to lower content acquisition costs. (See Verizon Skinnies Down With FiOS.)
Speaking of content acquisition, Verizon is still in a litigation fight with Walt Disney Co. (NYSE: DIS) and ESPN over its placement of ESPN channels outside of the basic Custom TV package. Customers who want ESPN access have to purchase an add-on content pack for an extra $10 per month. In New York City and Philadelphia, Verizon isn't allowed to advertise its Custom TV services for 45 days while the legal wrangling continues. (See Why Is Verizon Fighting With Programmers? )
Shammo said he wouldn't comment on litigation matters, but he did point out that Verizon continues to partner with ESPN for college sports for the company's new over-the-top video offering planned for launch this summer.
Adding a bit more detail to news of its upcoming OTT launch, Shammo confirmed that while a new video service will be available before the fall, it won't include everything Verizon has to offer on day one. Shammo emphasized that Verizon's content deals are strong, with a focus on live news, sports and events. The new OTT service will also benefit from Verizon's recent acquisition of AOL, which brings not only content, but also ad technology to the mix. (See Verizon Closes AOL, Hints at Summer Launch.)
In one sour note for Verizon's wireline business, the company reported disappointing enterprise and wholesale revenues for the quarter. Citing a decline in revenues from legacy transport networks and CPE, Verizon enterprise revenues dropped by 6.4% year over year, while wholesale revenues were down 4.5% over the same period.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading