Verizon Validates Disney

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In the next few weeks, Verizon Communications Inc. will launch a 50-hour-per-month, on-demand programming package from 10 networks owned by The Walt Disney Co. on its FiOS TV service.

It’s a major move by both companies: Phone company Verizon gets content the cable competition won’t be carrying, and Disney sees a big payoff for its stance that it will be paid for its on-demand programming — a position that has had only spotty success with cable companies.

Verizon, currently operating in Keller, Texas, and starting this week in Herndon, Va., does not plan to charge customers extra for access to the on-demand fare.

A FULL SUITE

“It’s the first time we’ve sold our entire suite of Disney offerings,” ESPN Interactive Product Development senior vice president Matt Murphy said of the on-demand suite, which offers content from ESPN, ESPN Deportes, ESPNU, The Disney Channel, Toon Disney, Jetix, SoapNet, ABC Family, ABC News Now and RDTV, Disney’s music-video network.

It has been sold, the Disney officials said, in that Verizon will pay a separate license fee for on-demand from what it pays for Disney’s linear channels. Officials wouldn’t disclose the specific fee or say whether it was based on usage.

“We’ve developed a package we are compensated for,” added Ben Pyne, the president of Disney and ESPN Networks affiliate sales and marketing.

Verizon spokeswoman Sharon Cohen-Hagar said the arrangement, in which Disney agreed to provide on-demand programming, “was part of a complex deal that involved a number of properties.” The spokeswoman added, “We are happy with the way this complex deal turned out.”

Except for Disney Channel, which will contribute 25 hours of fare per week to the content package, each network will offer five to 10 hours per week. One-quarter of the content will be refreshed weekly; all of it will run without advertising.

“This is high-quality content, including top shows like Kim Possible,” Murphy said. “We’re not holding anything back.”

Programs will include library titles and new series episodes. In fact, when the next season of ABC Family’s Wildfire debuts in January, FiOS TV subscribers will be able to see the premiere installment a day before it runs on the channel.

“Verizon was looking for key differentiators from other offerings in the market,” Murphy said. Disney’s on-demand content will meet that goal, he said.

“No one else will have the depth and the brands,” he said.

Verizon plans to segment its VOD content by network. For instance, by clicking genre tabs on the VOD menu, viewers will be sent to a screen on which ESPN, ESPN Deportes and ESPNU will appear.

Various Disney networks have experimented with VOD over the past three years. But other than a few paid-tier experiments — including a children’s programming package and a news programming package on Insight Communications Co. systems — Disney and cable companies could not agree on a long-term business model.

Disney wanted to be compensated, while cable operators have drawn the line at paying “extra” for content they deemed they had already paid for as part of their contracts for the linear channels. Insight, for example, has said it wants to expand its free-on-demand offerings.

Only Cablevision Systems Corp. — which carries Disney On Demand on a $4.95-per-month subscription video-on-demand basis, including various Disney Channel and Playhouse Disney preschool shows — has maintained any on-demand Disney programming.

In general, as a new entrant into the multichannel-video marketplace, Verizon would be expected to agree to greater compensation for programmers than established cable companies, who’ve spent years growing their base and whittling down programming costs. For example, broadcasters have spoken confidently about getting cash compensation from broadcasters to retransmit their local signals, something cable also has resisted.

“We learned a number of things” from those experiments, said Pyne. “One is: less is more. We’re taking the time to figure what to put on and making it navigable for consumers.”

IN-HOUSE DELIVERY

Disney’s new, slimmed-down programming package will be delivered over the company’s in-house distribution system. Instead of relying on TVN Entertainment Corp. or In Demand, the company is leasing satellite time and sending programming directly to VOD catchers at headends.

“We can put more timely content out there with the X Games and the National Hot Rod Association,” Murphy said. “That material is very compelling. We can turn it around within hours.”

Although putting SportsCenter on VOD is mired in rights issues with the professional sports leagues, Murphy said ESPN is looking at putting together taped pieces from its in-studio analysts. “Highlights are a commodity,” he said. “We can utilize our talent and have reporters do specific segments for video on demand or broadband.”

As Disney approaches the FiOS TV launch, it feels justified in holding out for compensation. “Clearly, we view our content as having value,” Pyne said — a message it plans to take to other broadband providers, including cable.

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