Verizon Wants to Refocus Pay-TV Model on Viewers, Not Homes: Report

FiOS provider Verizon wants to pay media companies for the channels subscribers watch, a "disruptive" model in a not à-la-carte market.

Verizon Communications would like to change the current business model for pay-television. Instead of paying the media companies that own most television channels a fee based on how many homes Verizon provides a channel to, it would like to pay based on whether subscribers in those homes are actually watching, The Wall Street Journal reported March 17.

A viewer would need to watch for five minutes to constitute a "unique view," Terry Denson, Verizon's chief programming negotiator, told The Journal, and viewership would be tracked via a set-top box that Verizon would provide, instead of the Nielsen ratings.

Denson said that the new model could potentially be extended to views on-demand and on mobile devices.

According to Nielsen ratings from September 2012 through March, the USA network was the most-viewed network, with 2.8 million viewers, followed by ESPN, with 2.7 million viewers and the Disney Channel, with 2.5 million viewers, according to a graphic in The Journal.

By contrast, the highest average monthly per-subscriber fees in 2012 were paid for the second-highest-rated ESPN ($5.05), while the most-watched USA network rated eighth for payments, at 68 cents.

Certain content players have a suite of channels and seem to "attempt to lever the strong ones to prop up the weak ones" without any data those channels are "actually viewed or wanted," Denson told The Journal.

He added that he hasn't yet tried to negotiate a deal with the biggest media companies—he'll do so when it's time for contracts to be renewed—and that smaller companies have met his suggestion with "head-scratching," given how "disruptive" a model it is.

Subscribers, of course, have no such option. They pay a flat fee for the channels they want and those they have no interest in.

Consumer interest group Public Knowledge has written that the current regulatory system has given cable providers local market power that has hurt competition.

"In a more competitive environment, cable companies might give viewers more control over the packages they subscribe to—offering more channels a la carte, or selling a more diverse mix of programming bundles that allow people to skip paying for programming they don't watch," Senior Staff Attorney John Bergmayer wrote in a blog post earlier this month.

Bergmayer also pointed out that cable fees have increased at a rate higher than inflation, and that is also due to factors that exist beyond the cable providers, which wind up passing the problems and costs of "upstream" distortions on to subscribers. One such issue is retransmission fees.

"Cable systems pay ever-higher retransmission fees, and this leads to higher prices to viewers," Bergmayer wrote.

Verizon's FiOS TV is the sixth-largest pay-television provider in the country.

During the fourth quarter of 2012, Verizon reported record-setting customer additions. Despite the intense impact of Hurricane Sandy on the East Coast, it added 144,000 FiOS Internet customers and 134,000 FiOS Video customers during the quarter, for a total of 5.4 million and 4.7 million, respectively.

For full-year 2012, Verizon's FiOS revenue grew by 15.7 percent. Two-thirds of Verizon customers have purchased a "triple play"—phone, Internet and video—and Verizon's average revenue per user for FiOS customers is more than $150.

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