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.

Is Disney worth top dollar?
It's easy to forget that Walt Disney is more than just the House of Mouse. True, Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney’s allure for investors lies in its diversity, and The Motley Fool's new premium research report lays out the case for investing in Disney today. This report includes the key items investors must watch, as well as the opportunities and threats the company faces going forward. So don't miss out -- simply click here now to claim your copy.


Read/Post Comments (2) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • 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...

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2323436, ~/Articles/ArticleHandler.aspx, 12/18/2014 3:38:55 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement