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In late January, Verizon announced that it was buying the digital assets and intellectual property that made up Intel’s OnCue, a move that would significantly boost its long-rumored plans to launch an over-the-top (OTT) TV service. The acquisition came in the midst of a flurry of M&A activity in the first quarter, during which major players in the cable industry looked for ways to improve their market positions in a time of significant disruption.
With the Comcast/Time Warner deal looming especially large, Verizon has an added incentive to solidify its position in the cable market, where its footprint is relatively small. Launching will be far from easy, however. The road ahead is littered with cautionary tales from companies who have tried to launch an OTT service in the past and failed. That said, a service of this kind would be good for consumers, content providers and the industry as a whole.
With the stakes so high, what will it take to get it off the ground? I’ve broken it down into five areas that Verizon needs to focus on in order to be successful.
Acquiring a high volume of compelling content, including sports and other live events, is probably the single most important thing Verizon needs in order to make its virtual service a success.
This, as we all know, is easier said than done. It’s what tripped up Intel and others in the past. Though Intel was fairly far along technologically, it was much harder and more expensive than they originally anticipated to close deals, in large part because of pressure exerted by Comcast and Time Warner on programmers. Moreover, the news from earlier this month that Disney-owned channels, including ESPN, could be made available online by Dish Networks to non-subscribers means that Verizon could have some significant competition.
Verizon has a distinct advantage in this area: it has a large wireless subscriber base to which they can market this service. Bundling an OTT service with its existing wireless offerings would give Verizon far more bargaining power in its discussions with content owners, who are unlikely to provoke the ire of larger cable operators unless it’s for access to a large new subscriber base.
2. Service bundling
In addition to giving Verizon additional leverage in negotiations with content owners, bundling wireless with their virtual service would enable Verizon to market it much more effectively to consumers. One of the problems Verizon has continually run up against with FiOS is that most consumers view them as a telco, not a cable company. (AT&T has faced a similar challenge.) By bundling OTT with what they’re known for and great at, they’ll have a much easier time enlisting new subscribers.
Verizon already has a leg up when it comes to technology. In addition to Intel’s assets, they have all of the pieces of a video delivery ecosystem in place as a result of their acquisitions of CDN provider Edgecast and video streaming service UpLynk. They also have a pure IP distribution for their FiOS network. The key here will be to leverage all of these assets to deliver a fast, reliable streaming service. Verizon will face a significant challenge integrating all of these individual components, but it is essential that it does so.
4. Business Model
One of the TV industry’s Achilles heels is its inability to successfully monetize digital content. This is driven in large part by the highly inefficient way in which its ad sales are structured. In most organizations, TV and digital have different pricing models, different deliveries and are sold by different sales teams. Verizon will face an even greater challenge given that all of its content will technically be digital.
To make it work, Verizon will need to re-think its ad model and identify ways to drive value for brands who are advertising against their OTT content. This might include packaging it with terrestrial TV spots on FiOS, or merging sales teams into one unit. Both ABC and Comedy Central have already begun to experiment with such strategies.
5. Consumer Experience
An OTT service is likely to be a relatively small part of Verizon’s overall business for the foreseeable future – it has an uphill battle when it comes to marketing and consumer education.
Though Verizon has a solid reputation when it comes to wireless, FiOS is only available in a limited number of markets, which means most consumers don’t associate them with pay TV. One of the things its done extremely well with FiOS is delivering a great customer experience — it’s known for its high speed and low occurrence of service interruptions — and Verizon needs to bring that same experience to its OTT service.
Though Verizon will likely invest millions in marketing, it’s likely that word-of-mouth will play a large role here, particularly amongst early adopters. The company needs to focus on creating a slick, intuitive interface and consistent iterations in response to customer feedback.
There has been no shortage of discussions about the future of TV over the last several years, and pressure to the existing model seem to appear with more and more regularity. Though Verizon’s OTT service is just one of a series of disruptions to the status quo, it has the potential to be a game changer in the long run.
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