FiOS TV'S $50 FACTOR

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Verizon Communications Inc. plans to aggressively target cable and satellite subscribers with three low-priced programming packages for its upcoming FiOS TV service, which the company plans to launch during the second half of 2005.

Industry sources said Verizon will attempt to woo customers with a $50-to-$55-per-month programming package that would include premium channels from Starz Entertainment Group and Showtime Networks Inc., along with more than 150 digital basic channels.

Sources said Verizon will also offer two lower-priced tiers — a lifeline video service which would only contain local broadcast channels, and a basic-programming tier which would feature traditional analog basic cable channels such as ESPN, MTV: Music Television, Cable News Network and USA Network.

Verizon spokesman Eric Rabe said the company will offer multiple programming tiers, but declined to confirm specific pricing or packaging offers.

“We hope to be more creative and, frankly, more user friendly on a lot of scores here,” Rabe said when asked if Verizon planned to pursue unique packaging strategies with premium channels, compared to the way cable operators have traditionally packaged channels like Home Box Office and Showtime.

DEALS WITH150

A source said Verizon has reached distribution deals with programmers that would give the company more than 150 channels to market to subscribers. But Verizon has only announced a handful of programming deals for FiOS TV, most recently an agreement with Showtime Networks last week.

Verizon has also touted agreements with Starz Entertainment Group, NBC Universal Cable, A&E Television Networks, Court TV and, also last week, Varsity TV, Gospel Music Channel, Soundtrack Channel, MavTV and GolTV.

Sources said Verizon has also pitched HBO on the idea of joining Starz and Showtime channels in a widely distributed tier which would include digital-basic channels, but the telco and HBO haven't yet hammered out a deal. HBO declined to comment.

Officials at Starz and Showtime declined to discuss the terms of their agreements with Verizon, but Showtime executive vice president Mark Greenberg said he expected that his carriage deal would drive distribution for Showtime and the company's other channels, including The Movie Channel and Flix, plus HDTV and VOD programming.

“We are excited by the proposition that Showtime will reach a wider audience,” Greenberg said.

Verizon's strategy of packaging premium channels with digital basic programmers is akin to how Charter Communications Inc. gives Showtime to every digital cable customer at no additional cost.

Under an agreement Showtime cut with Charter in May 2004, the MSO includes Showtime, The Movie Channel, Flix, Showtime HD and Showtime On Demand in its entry-level digital-cable package.

Originally priced at $49.99 per month, Charter now charges digital cable customers $52.99 per month for digital cable, including the Showtime channels.

Charter senior vice president of advertising sales and marketing Jim Heneghan declined to comment on Verizon's packaging and pricing strategy. But he said Charter's move to package premium channels with its entry-level digital basic tier has been effective.

“The ability for our customers to have efficient access to what many consider 'premium' programming is a great feature of our offering,” Heneghan wrote in an e-mail message.

PREMIUM A LA DIGITAL

One source said Verizon's strategy is to provide a better value proposition for consumers at more attractive price points by offering premium content at a price that most cable operators charge for digital basic.

While Verizon is considering charging $50 to $55 for digital-basic channels and premium networks Starz and Showtime, most cable operators charge at least $50 for just digital basic, and $10 or more for each additional premium channel.

For example, in Boston, Comcast Corp. charges $58.91 monthly for its “Digital Classic” tier, which includes local broadcast channels, analog basic channels, and digital basic channels from programmers such as Discovery Communications Inc.

Digital subscribers that want one premium channel in Boston must pay $77.91 per month for Comcast's Digital Silver package, while an $87.91 Digital Gold package comes with two premiums.

Verizon has said it will launch FiOS TV first in cities where it has obtained local franchise agreements to offer video service, including Sachese, Westlake and Wylie, Texas; and Beaumont, Calif.

The company has also been lobbying for statewide franchise agreements, which could speed the rollout of FiOS TV.

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