Dish and Verizon Have Different Reasons for Building Streaming Services

Dish Network and Verizon are the two U.S. video entertainment providers most committed to creating and marketing over the top video services that consumers could someday buy without also buying a fixed network or satellite video subscription service.

In that sense, both Dish and Verizon are among firms, with Netflix, Sony, Apple. Amazon and Google, that might emerge as key providers of over the top video entertainment services that do not require prior purchase of a fixed network video service.

But one might argue that Dish and Verizon have different reasons for wanting to do so. Dish rightly fears that, eventually, as the video business moves to an on-demand format, its network will be unsuitable, as satellite is optimized for point-to-multipoint delivery, not point to point services and apps.

Verizon as different reasons for wanting to be in the business. First, Verizon rightly assumes that mobile delivery will be an important distribution opportunity. Also, Verizon rightly assumes it will escape geographical limitations by shifting to mobile delivery.

Verizon owns a national mobile broadband network, while its FiOS fixed network serves but a fraction of U.S. homes and persons.

That latter limitation is a good reason why, though Verizon and AT&T continue to gain video subscribers, their gains have not been even greater. Nearly all U.S. households are passed by a cable operator able to sell video.

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There were about 132.4 million U.S. housing units in 2012, with some 115.2 million of those units actually occupied, according to the U.S. Census Bureau.

U.S. cable operators pass nearly 115 million U.S. homes, meaning cable operators can sell video services to nearly every household.

In contrast, perhaps 23 million U.S. homes are passed by a telco or municipal fiber to the home connection. And including even fiber-reinforced telco access connections using some form of fiber to the neighborhood, Verizon and AT&T actually sell a service to just about four million homes each.

By some estimates, telco video passings will not even reach half of U.S. homes by about 2015.

The practical implication is that even the largest U.S. telcos (AT&T and Verizon) are inherently limited in terms of the amount of market share they can gain in the video entertainment business, based on use of fixed network access.

And that is the real strategic implication of over the top video, not bundled with a fixed network subscription. As satellite video providers are able to reach almost 100 percent of homes, so an over the top provider would be able to reach 80 percent of U.S. homes, based on adoption of broadband access services.

Also, there are regulatory advantages. There are informal understandings that no single video, voice or Internet services provider is “safe” once it passes about a 30 percent share of market, from antitrust scrutiny.

Over the top video, on the other hand, does not suffer from such stringent scrutiny, and likely would also be a fragmented enough business to allow providers to create important new businesses without undue regulatory risk.