Monday, October 27, 2014

Verizon Offers Free Year of Netflix with New Bundle

Verizon now is offering a free year of Netflix for new customers buying a $89.99 triple play service.

That offer includes symmetrical 75 Mbps high speed access service, a $150 Visa gift card and a full year of Netflix.  

BTIG analyst Walt Piecyk thinks the marketing message is noteworthy. Though a major supplier of linear video subscriptions, Verizon actually does not mention that fact as part of the promotion.

Instead, the new offer banks heavily on high speed access and over the top Netflix. What that means is that Verizon is dead serious in viewing linear video as a product with less relevance for future revenue than over the top video.

And OTT video has relevance not because it contributes direct revenue, but because it drives buying of high speed access, and Verizon believes it will be able to tie consumption and revenue together in some relatively direct or linear way.

That is not to say linear video is unimportant at the moment. In fact, linear video is the key additional product for a fixed network consumer product bundle, even if linear video is a product with challenged growth prospects.

It is no mistake that Google Fiber sells high speed access and linear video entertainment.  

Dish Network, for its part, had earlier offered six months of free Netflix as a promotion, not so much because Dish could sell more high speed Internet access subscriptions, but simply on the strength of Netflix as a content store.

The point is that service providers (telco, cable, satellite, ISP) need a strategy for dealing with video. That means offering linear video, supporting OTT, doing both or neither are fundamental issues for an access services provider.

The reason is that Industry executives believe the linear business will change, over the next decade, as OTT options grow.

The magnitude and timing of the shift are major unknowns. Also unclear is the business model for being a linear video services provider. And it is clear that Verizon sees less upside than AT&T.

For Verizon, the new wrinkle is mobile-centric content, and the thinking clearly is that there are ways to leverage live events (concerts and sports, especially) specifically in the mobile domain.

Video in the fixed network is a different issue, Verizon executives might argue, because it is anchored by linear video, a product that already has likely passed the peak of its product life cycle, and also because profit margin for linear video lags profits for other products, at least as Verizon experiences the business case.

So what other routes might be taken? Verizon tends to believe that over the top services hold some promise, compared to linear video, even if saving money really is not the issue.

Creation of lower-price linear services now is on the agenda for the linear video business, especially to reach Millennials who never have acquired the habit, or are abandoning the habit of buying linear video.

Ironically, even if “saving money” is the value, many consumers would not be able to save money replacing a linear video subscription with a purpose-built set of alternatives.

At some point, when a consumer watches a fair number of channels, the bundled linear video service, with access from smartphones and tablets on a remote basis, arguably will be a cheaper alternative to buying many individual channels.

But Verizon, AT&T, Comcast and others already see that the key strategy is to leverage end user demand for video to drive high speed access services with some usage component.

In that view, the precise mix of video content options (linear, OTT) matters less than supplying the high speed access customers need to view all that content.

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