I put my conspiracy theory guy pants on this morning as I emailed a couple of media analysts with a half-baked theory whose time has come: In hoisting a controversial new bundling strategy that has irked its programming partners, Verizon (NYSE: VZ) is really working to build leverage to negotiate content rights for its upcoming wireless OTT service.
Think about what Dish Network (NASDAQ: DISH) and Charlie Ergen did with AutoHop several years ago. They knew the broadcast networks weren't going to like this feature--they even got sued for it. In the end, getting Dish to get rid of AutoHop became a valuable marketing chip with the Walt Disney Company in the landmark programming rights deal that kick-started OTT service Sling TV.
Would Dish ever have had enough leverage to convince one of the most powerful programming conglomerates to give up OTT rights without having that big kangaroo in the room? Does Verizon have enough juice at the bargaining table to get the program rights it needs to launch an OTT service this summer aimed at young, mobile consumers?
After eavesdropping on my next-door neighbor's conversation about poisoning the local water supply, and combing through my wife's Facebook, I shrewdly put two and two together.
Who's with me?
I got a collective shrug from the analysts I polled.
"It's hard to know, but the mobile offering appears to have a different slant from traditional linear TV," said BTIG's Richard Greenfield. "Verizon is putting a lot of marketing dollars in Custom TV just to kill it tomorrow."
Added The Diffusion Group's Joel Espelien: "I do think it's a legitimate response by an MVPD to current consumer reality. You have to find a way to make pay-TV a better value. One obvious way is the customized skinny bundle. Otherwise, people will just decline the 'supersize' offering and make their own bundles out of OTT services."
Does Verizon, which added 90,000 FiOS video customers in Q1, need to grow its subscriber so much that it's willing to go to war with its programming partners?
In case you haven't been following the news this week, Verizon on Sunday introduced a new program bundling scheme for its FiOS video service called Custom HD. Subscribers pay $54.99 for 35 basic cable and broadcast networks, as well as two add-on "channel packs" that include 10-17 cable networks themed around "sports," "lifestyle," "news and information," "kids," "pop culture," etc. Subscribers can add additional channel packs in $10 increments.
ESPN, Fox Sports 1 and NBCUniversal have been among the first to stand up and say they never agreed to the bundling strategy, which disaggregates larger channels like ESPN from smaller siblings like Disney XD.
Verizon executive VP and CFO Fran Shammo was asked Tuesday if his company had talked to programmers prior to deploying Custom HD.
"We believe we're able to offer these packages under our existing contracts," he said
"This is the product the consumer wants. It's all about consumer choice. Most people only watch about 17 channels."
Speaking at Verizon's Q1 earnings call with media analysts, Shammo was also asked if the bundling strategy had anything to do with the launch of the upcoming OTT service.
"I would not read into the custom TV package being used as a precursor. It's not. These are two distinct ecosystems."
Right, I thought. That's exactly what he wants me to think.--Daniel