Why Verizon wants to go over-the-top


Verizon is working on launching a streaming subscription video service that could compete directly against online players like Netflix and Hulu Plus, according to Reuters. But more importantly, the service could allow Verizon to deliver video services to customers that don’t live in its current footprint, and do so without an expensive network buildout.

This isn’t the first indication that Verizon was willing to create a streaming service to non-FiOS subscribers. Earlier this year, Verizon SVP of Product Development Shadman Zafar showed off an over-the-top video-on-demand service that would be available on devices like the Roku box or video game consoles like the Microsoft Xbox or Sony PlayStation 3. But that was expected to be a pay-per-view play and compete with the likes of Apple’s iTunes and Walmart’s Vudu, as opposed to a subscription offering.

The telco is reportedly negotiating deals with potential programming partners for a new standalone service that would be separate from its existing FiOS video package. The idea is that Verizon could piece together programming such as cable networks Starz or Epix to create a Netflix-like package of video content it sells to anyone with a broadband subscription.

Going over-the-top means Verizon will not only compete with Netflix, Hulu Plus and Amazon Prime Videos, but it would also allow it to reach customers it doesn’t currently have access to — and which it would be costly to try to attain. Verizon has signed up five million subscribers to FiOS since it first launched the fiber-to-the-home service in the mid-2000s, but it recently stopped its fiber buildout after spending more than $20 billion on the service. Going over-the-top is one more way Verizon can gain additional revenue without investing heavily in its own network.

While Verizon has stopped entering into new markets with FiOS, it recently struck a deal with Comcast, Time Warner Cable and Bright House Networks in which it purchased mobile spectrum from the cable providers. As part of that deal, Verizon and those cable companies will cross-sell and cross-promote services that could include triple- or quadruple-plays packages of video, broadband, voice and wireless access.

The underlying strategy behind all of this seems to be that Verizon doesn’t want to invest in infrastructure to pull in incremental video revenues. That’s why Verizon is ceding the video piece to the cable guys with its spectrum deal — and why it’s planning a streaming offering that doesn’t require expensive investment in more networking equipment. After all, why lay more fiber when you can just ride someone else’s pipes?

Photo courtesy of (CC BY 2.0) Flickr user slgckgc.

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