Verizon Communications Inc. (NYSE:VZ) wants to shake up the TV industry in a big way.
Cable distribution deals are pretty simple today. The cable company (or fiber company, in the case of Verizon Communications Inc.(NYSE:VZ)’s FiOS broadcast service) sits down with content providers, hammers out a deal to display certain channels or entire portfolios, and then pays a fixed monthly sum per subscriber. But Verizon thinks the current system is terribly inefficient.
“We are paying for a customer who never goes to the channel,” said chief programming negotiator Terry Denson in a Wall Street Journal interview this week. Some channels see very little use, but their costs must be spread out across every customer anyhow.
Because Verizon Communications Inc.(NYSE:VZ)’s Internet-based TV service requires an official set-top box (you can’t just hook your TV up to the fiber and call it a day), the company can see usage patterns in minute detail. So why not use this rich data to determine a fair price for the stuff FiOS customers actually watch?
“If you are willing to give a channel five minutes of your time, the cash register would ring in favor of the programmer,” Denson said. Customers would have access to a much wider selection of channels than they do today, but content owners would be paid based on what we actually watch.
This idea pits giant against giant. Verizon is one of the most pure content-distributors in the cable-like market, as it doesn’t produce any shows itself. Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWX) have interests on both sides of the equation, which explains why they’re not terribly interested in shaking up a system that might unfairly reward niche programming. The Walt Disney Company (NYSE:DIS) is an example of Verizon’s extreme opposite: The Mouse loves to sell its ESPN, the Disney Channel, and the ABC network as part of broad bundles, even if cable subscribers wouldn’t watch them.
Verizon Communications Inc.(NYSE:VZ) hasn’t discussed this new plan with any of the big content-makers so far, starting small with unnamed “mid-tier and smaller” creators. If and when the idea moves on to the big stage, Verizon could end up turning the entire cable industry on its head. The epic conflict will move markets, as both Disney and Verizon Communications Inc.(NYSE:VZ) are part of the Dow Jones Industrial Average . Another anonymous cable executive told the WSJ that it would take “a giant seismic shift” in the industry to get that far.
The article Is the Cable Industry Ready for Verizon’s Bold New Idea? originally appeared on Fool.com and is written by Anders Bylund.
Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Walt Disney. Motley Fool newsletter services have recommended buying shares of Walt Disney.
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