Verizon, the nation's sixth-largest TV provider, is considering its options when it comes to TV channel bundling. Verizon's lead programming negotiator, Terry Denson, told the Wall Street Journal that under the plan Verizon would pay only when a subscriber tunes in for at least five minutes at a stretch. He also said that the IPTV provider wants to begin charging its FiOS TV subscribers only for the channels they actually watch.
In order to do that, Verizon would leverage the set-top boxes that its 4.7 million FiOS customers have at home, in a move that would cut Nielsen out of the ratings measurement process.
Pay-TV operators have increasingly complained about the practice of bundling networks — media companies ask for a bundled fee to cover a wanted, high-rated channel, but often insist that distributors also take and pay for lesser-known, less popular channels as part of the same bundle. An example would be AMC Networks, which bundles the popular AMC network with others, like the Sundance Channel, that are more niche plays.
Instead, an a la carte approach would allow them to be more flexible in their subscription bundling and pricing, generating positives for consumers in terms of choice and cost, they argue. Of course, moving to a full a la carte scheme would require an overhaul of the entire TV revenue model, but small steps are nonetheless being taken to break media companies’ stranglehold over programming costs.
This is not Verizon’s first experimentation rodeo. Earlier this year it launched a slimmed-down IPTV package that takes sports content out of the equation, featuring a steep discount. The Select HD package service goes for $49.99 per month, compared to Verizon's standard Prime HD package that costs $64.99 per month. The service's 140 channels includes local broadcast TV networks and what Verizon says is "19 of the top 30" basic-tier cable networks, including Disney, Nick, Cartoon Network, CNN, MSNBC, The Weather Channel, The Discovery Channel, USA, TBS, AMC, FX, BET, Bravo, Food Network, HGTV and TLC. It also includes 30-plus HD channels and video-on-demand (VOD). But not sports.
"Sports is not everyone's cup of tea," said Verizon spokesperson Bill Kula, in a blog post. "In fact, we have many customers for whom watching sports is akin to me watching a fashion or dance program (not fun for me at least)."
He added, "We understand that many households are on a tight budget, and we want to help make sure you aren't paying for something you think you don't need."
Others have joined the chorus. In December, Time Warner CEO Glenn Britt warned that he would drop pricey but low-rated channels from the TWC line-up where it makes sense. Speaking at a UBS investor conference, he said that he plans to take a "hard look" at programming contracts, evaluating channels that "cost too much relative to the value of the service," according to the Wall Street Journal.
Low-rated nets will from now on see a "different kind of conversation ... than we had with them five, six or ten years ago," he said, because programming is "just starting to cost too much.” And the cableco did put its money where its mouth is when it dropped Ovation, the niche arts network, from the lineup.
Verizon’s proposed approach would actually protect independent niche channels like Ovation, however, by allowing them to compete on a level playing field with other small networks.
"This is the beginning," said Gene Kimmelman, a former senior antitrust official at the Justice Department. "If the conflict between cable distributors and content owners persists and prices keep rising, there will be enormous market pressure to begin unbundling offerings, give consumers more choices and, from my perspective, ultimately let consumers control what they buy and how much they pay."
The Verizon move comes at a time when the industry is facing an antitrust backdrop over just these issues. Cablevision Systems has slapped an antitrust lawsuit against Viacom, accusing the media giant of demanding a $1 billion penalty if the MSO did not agree to Cablevision to carry and pay for 14 unpopular networks, such as Palladia, MTV Hits and VH1 Classic, along with must-have networks such as Nickelodeon, MTV and Comedy Central.
"Viacom's conduct harms Cablevision and its customers, and impairs competition by making Cablevision pay for and carry networks that many subscribers do not want to watch, while other networks are excluded from distribution, preventing Cablevision from being able to differentiate its services and harming subscribers," the suit said.
The outcome could have serious ramifications for the way TV packages are built and paid for; in fact, some industry watchers expect the dispute to put the idea of true al la carte channel bundling into laser-like focus as the industry considers the next generation of television service.
The two companies reached a renewed carriage deal in December, but the cableco is essentially saying now that it was suckered into signing it. Viacom, it alleges, abused its market power to coerce Cablevision into a deal by threatening to impose financial penalties (that alleged $1 billion) unless Cablevision complied with Viacom's demands to take the ancillary networks. If the MSO didn’t pony up to pay for the niche networks, then there would be not MTV or Nick at Night on offer either.
The suit, parts of which were just made public, alleges that the increases for Viacom alone over the contractual period “exceeded Cablevision’s entire 2013 budget for programming.”
Viacom, unsurprisingly, begs to differ. “Cablevision is crying foul over a standard business practice that expands choice and lowers cost for consumers – a practice they use extensively to sell their own services,” Viacom said by way of the company blog. “Cablevision received significant discount on a package of networks that account for nearly 20% of the total viewing audience. Now they want the lower price without the obligation to offer our networks to their customers. For Cablevision it’s ‘do as we say and not as we do’ – an arrogant approach all too familiar to its customers.”
Taken together, it’s clear that there’s a groundswell for change in the way content is licensed—a move that should be good for consumers. "The fact that these cable companies are coming out publicly about their disputes with programmers [is] in itself significant," said David Kaut, an analyst at investment research firm Stifel Nicolaus. "These developments hold some potential for disrupting current cable TV bundling, and more generally, I suspect the drip, drip, drip of broadband Internet video developments will put market pressure on the bundle over time."
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