While Verizon Communications’ near-term plans for its proposed acquisition of Intel Media’s assets is to enhance and upgrade its FiOS Video platform for the IP-based multiscreen world and put it on more technologically even footing with Comcast’s cloud-fed X1 platform, at least one industry watcher believes the telco has much more in mind – fulfilling the original vision for Intel Media’s “OnCue” service by developing and launching a virtual multichannel video programming distributor (MVPD) that can be sold and marketed out-of-footprint.
“We presume the main reason Verizon would be interested in acquiring Intel Media would be to prepare Verizon for a nationwide launch of a virtual MVPD, specifically targeted at regions outside of its FIOS footprint (FIOS currently has a bit over 5 million subscribers),” BTIG analyst Richard Greenfield wrote in a blog post (registration required) last November, when rumors about a sale of Intel Media’s began to circulate. “To launch a virtual MVPD utilizing Intel Media’s technology, Verizon would need to negotiate expansions of its current programming deals for FIOS to incorporate non-facilities-based offerings.”
At the time, he suggested that Intel’s decision to yank back its original plan to go it alone was not due to a lack of programming distribution rights. “Rather, we believe the problem is Intel’s appetite for the size of the financial risk required to launch, which includes large commitments to programmers, direct-to-consumer marketing, subsidized consumer premise equipment and the build up of a subscriber support team,”
That’s meshes well with what industry sources who were familiar with Intel Media’s talks with programmers told me at this month’s International CES in Las Vegas. They said Intel Media had all of those deals in place, but opted not to sign them because the terms of those agreements included subscriber milestone and other commitments that would be tough for Intel Media, a company that would be starting off with zero subscribers, to meet.
Verizon, meanwhile, would not be starting from zero as it looked to graft OnCue onto its FiOS video platform. It ended 2013 with 5.3 million FiOS TV subs on an all-fiber network that currently passes 18.6 million premises. That’s alongside a whopping 102.8 million “retail connections” coming way of Verizon Wireless. So, Verizon still has some ground to gain within its FiOS footprint, as well as plenty to pursue out of it, if and when it secures the distribution rights to do so.
But if Intel Media was indeed able to secure those rights, even if it had to pay a handsome premium to get them, it should be an easier trick for Verizon, and the scale it brings to the table, to pull off.
And that should likewise bode well for Sony, which will test a virtual pay-TV service later this year. Although Sony will start at zero pay-TV subs, it will have a massive base of consumers to market the service to right away -- Sony currently has about 70 million Internet-connected devices (including about 25 million PlayStation consoles) in U.S. homes.
Comments Tuesday by Verizon chairman and CEO Lowell McAdam appear to suggest that the telco is at least leaving some wiggle room for a possible out-of-footprint pay-TV offering. OnCue, he said, will give Verizon the ability to build “next-generation video services, both integrated with Verizon FiOS fiber optic networks and delivered ‘over the top’ to any device.”
Verizon’s transactions and Sony’s plans, alongside persistent rumors that Google is prepping a virtual pay-TV offering of its own, bring together the ingredients for an explosive, disruptive era for the video industry. Should any of them move ahead with subscription TV and video services that are delivered over-the-top on a national basis, it could force Comcast and other major MSOs with the techical wherewithal to follow suit (again, if they're able to secure the proper distribution rights).
That, in turn, could spark a video war that could turn the pay-TV industry, and the business models that currently support it, completely on its head.