Verizon's 'Custom' TV Plan Brings Industry Closer to A La Carte
A new television package from Verizon Communications (NYSE:VZ) is bringing the industry closer to “a la carte” pricing.
Verizon is rolling out a FiOS TV plan that allows subscribers to pair a base package of 35 networks with smaller channel packs. For $55 a month, FiOS Custom TV will offer broadcast networks, certain cable channels like AMC (NASDAQ:AMCX) and two channel packs selected by customers.
Channel packs are based on genres like sports, kids, news and entertainment. Extra channel packs cost $10 a month each, and subscribers can swap out a pack after 30 days. Internet and phone service can be added for additional fees.
Verizon shares edged 0.5% lower to $49.03 in recent trading Friday. The stock is up 4.8% since the start of 2015, outpacing the broader S&P 500.
The FiOS package, which will launch April 19, stops short of shifting entirely to an a la carte option that would let consumers select individual channels.
Rich Tullo, an analyst at Albert Fried & Co., predicts TV is moving in that direction. He said all of TV will be over-the-top, or delivered via the Internet, in about 10 years. Meanwhile, pay-TV providers could offer video-on-demand services on a standalone basis within five years.
Growing demand for paid streaming video services, including Netflix (NASDAQ:NFLX), Hulu and Amazon.com’s (NASDAQ:AMZN) Prime Instant Video, is pressuring cable and satellite TV companies to offer customizable channel lineups.
The TV industry has been testing the waters. Dish Network (NASDAQ:DISH) recently launched Sling TV, which lets subscribers add channels to a base package that starts at $20 a month. Apple (NASDAQ:AAPL) is reportedly working on its own over-the-top service.
“What Verizon’s doing now, we view that as less of a reaction to cord splicing but more about positioning to go to a la carte in the future,” Tullo said. Cord splicing is a better description of consumer trends than “cord cutting,” he added, since over-the-top users aren’t completely severed from cable companies.
Tullo also compared Verizon’s plan with a package offered by Time Warner Cable (NYSE:TWC). The rival cable company has an “Extreme” bundle that includes a selection of TV channels and Internet service with broadband speeds of 50 megabits per second. FiOS Custom TV offers equivalent Internet service as an add-on.
Based on Albert Fried research, the cost of Apple TV and three streaming services—Amazon, Hulu and the average of three sports options—is $5 less than Time Warner Cable’s bundle. However, Tullo believes cable service provides a superior experience for customers.
He said if content is king, experience is the emperor in today’s media world.
“The point is these packages are competitive, and that’s the first step to getting someplace else,” Tullo added. “I can’t think of too many businesses that were unsuccessful when giving consumers what they want, and consumers want to watch these shows on their own schedule.”