Exclusive: Verizon to take on Netflix with Web service

NEW YORK Tue Dec 6, 2011 5:45pm EST

The Verizon logo in a file photo.  REUTERS/Rick Wilking

The Verizon logo in a file photo.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - Verizon Communications Inc plans to launch a standalone service allowing customers to stream movies and television shows over the Web, in a fresh challenge to Netflix Inc and the traditional cable TV business, according to several people briefed on the plan.

The phone company is talking with prospective programming partners about the service, which would be introduced outside of markets where it currently offers its broadband and TV package, known as FiOS, these people said. That would make it available to some 85 million U.S. households.

The new service could be rolled out in 2012, according to one of the people.

Shares in Netflix fell by as much as 5 percent on Tuesday to the day's low before recovering to end the day down 3 percent at $68.14 on the Nasdaq.

The package of programming would be limited in its scope, said two people with knowledge of the plans. Another person said the focus would be packages of movies similar to Liberty Media's Starz Play and Viacom's Epix or could involve children's programming from a partner such as Walt Disney Co or Viacom.

Epix's current exclusive online-streaming contract with Netflix runs out next September, allowing other services to negotiate with Viacom for Epix' package of movies from Paramount, Lions Gate and MGM studios.

Viacom Chief Executive Phillipe Dauman said at a conference this week his company would be open to negotiating with other broadband only services.

People familiar with the plans declined to be identified as the discussions between Verizon and programming partners are confidential and sensitive.

Verizon has been back and forth with programmers over the last two years exploring the possibility. While a lot of the discussion has been around fees, the programmers have also been concerned about the possibility of hurting their existing - and lucrative - relationships with the cable operators.

Crucially, any new Web TV service would be offered outside of Verizon's FiOS current markets. Verizon currently has 5 million FiOS TV subscribers.

A Verizon spokesman declined to comment.

News of the service will have added controversy in the wake of sister company Verizon Wireless's plans to resell cable TV service for Comcast Corp, Time Warner Cable Inc and Bright House Networks.

Under that deal, announced last week, Verizon Wireless will pay $3.6 billion for valuable spectrum from the cable companies. Verizon Wireless is a joint venture of Verizon and Vodafone Group.

While a limited package of TV shows and movies is unlikely to have an immediate impact on cable sales, the launch of an online video service by a major company like Verizon will only add to the uneasiness in the pay TV business.

Companies that sell cable and satellite subscriptions are concerned that customers will drop their pay-TV subscriptions in favor of cheaper Web alternatives - so called 'cord-cutting' or 'over-the-top'.

Most likely, Verizon would want to price any such service competitively with Netflix, whose subscriber count has swelled to some 23 million.

In the last few years, traditional cable operators have been steadily losing video customers to satellite and phone companies who have replicated the cable model. But the biggest fear is that new Web rivals including Netflix, Amazon.com Inc and Google Inc will disrupt the $100 billion a year cable business.

Microsoft Corp had looked closely at launching a similar disruptive service through its Xbox gaming device but has so far decided to work with the cable industry in offering an enhanced service to paying cable and satellite subscribers.

"If this deal comes true it's not clear to me what Verizon would bring to the table that is materially different to what others like Amazon offer," said Carlos Kirjner, analyst at Bernstein Research. Kirjner said Verizon would struggle to negotiate favorable terms to be competitive with Netflix.

Netflix CEO Reed Hastings, speaking about rivals at a UBS Media and Technology investment conference on Tuesday, said "the competitor we fear most is HBO Go," a streaming service for subscribers of the pay TV channel owned by Time Warner Inc.

"HBO and Netflix both spend between $1 billion and $2 billion a year on content. If you want to compete with HBO and Netflix, you better commit to multiple-year spending between one and two billion," Hastings said.

"At this point, none of these guys have chosen to do that," Hastings said. He was not asked specifically about the planned Verizon service.

One reason Verizon is keen on launching online services is to be able to grow its customer base and thereby lower its programming costs on a per-subscriber basis. The more subscribers a distributor has, the easier it is to negotiate lower fees.

Programmers and distributors have been working closely together for the last year on making cable networks available on the Web to paying subscribers in an initiative called TV Everywhere.

Verizon FiOS customers currently have access to around 30 networks over the Web through FiOS TV Online.

(Reporting by Yinka Adegoke; Additional reporting by Lisa Richwine in Los Angeles; editing by Paul Thomasch, Bernard Orr, Gary Hill)

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Comments (10)
jscott418 wrote:
I think the cable companies are missing out on a big sales potential. I think they have a lot of customers of their Broadband service who do not have TV service. Why they do not offer a Internet TV service to complement their broadband is beyond me? I have been a Comcast Broadband customer and use services like Netflix and Hulu and do not have Cable TV or Satellite TV service. I use over the air because the TV packages are inflated with channels I would pay for but never watch. I think as Internet TV becomes more popular the ideal of paying for what you watch is going to get more popular.

十二月 06, 2011 3:25pm EST  --  Report as abuse
Ram777 wrote:
Verizon competing with Netflix? Verizon, what are you thinking? Ah well — if you start throttling netflix on verizon phones, I’ll have to move off verizon.

十二月 06, 2011 4:16pm EST  --  Report as abuse
aweigh.cn wrote:
the potential streaming service conflicts with Verizon’s 5+-year-old FiOS broadband TV service

十二月 06, 2011 10:02pm EST  --  Report as abuse
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