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Is the Cable Industry Ready for Verizon's Bold New Idea?

Verizon (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'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.

Verizon wants to measure how big this baseball hero really is to its subscribers.

Because Verizon'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 (NASDAQ: CMCSA  ) and Time Warner (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. Walt Disney (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 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 are part of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) . Another anonymous cable executive told the WSJ that it would take "a giant seismic shift" in the industry to get that far.

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  • Report this Comment On March 20, 2013, at 3:21 PM, NeuroNerd wrote:

    I actually feel that Disney is among the pure content producers with the least to lose from unbundling. Many of its channels are broadly watched, and unbundling could present an opportunity to squelch Fox's nascent entry into the all-important sports space. And historically, the House of Mouse has been decisive in these sorts of business fisticuffs--guess which side they took in the HD-DVD vs BluRay battle, as the latest example? I'll give you a hint--the answer's in your video cabinet, if you still own discs. Thoughts or comments?

  • Report this Comment On March 22, 2013, at 5:01 PM, jssiegel wrote:

    And on the flip side, why should I be required to pay for channels I will never look at in order to get the channels I want, because of bundling? Digital protocols easily direct the right packets of data to the right IP address...

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