And Verizon is exploring how it could offer Fios TV service
outside its wired footprint. And, separately, it's setting up a new
business unit, Verizon Digital Media Services, to enable Fios and
others to deliver live TV over the web to all net-connected
devices.
Neither is close to rolling out their own web TV service, but
both are determined to secure the rights so that they have the
option of doing so in the future. They're not alone: Cable
operators are looking at web delivery to leap the confines of their
wired network, and video-on-demand services such as Hulu, Apple and
Amazon, as well as other brands not generally associated with TV,
are looking to enter the TV market.
The talks point to a future where consumers have the option of
buying broadband internet service from one provider and TV service
from another. It also promises to make the current dispute between
programmers and cable companies over the right to stream content to
new devices like iPads look like child's play.
Microsoft, which has improbably built an enormous gaming
business, has been looking at providing linear TV for years, and
has recently sought the rights to do so. But whether Xbox should
provide linear TV is subject to fierce debate in Redmond. Gaming is
a very profitable business for Microsoft in a way video is not.
Further, executives there see no competitive advantage in simply
matching a cable subscription in price and content.
But if it does enter into TV delivery, Microsoft could overnight
be one of the biggest providers, with 30 million potential
customers, who are already spending 40% of their time on the Xbox
watching video.
"What I can say is Microsoft Xbox is very interested in
delivering great entertainment to consumers, entertainment in the
broadest sense," said Ross Honey, head of content acquisition for
Xbox. "From our perspective, gaming and TV are going to
coexist."
Microsoft is making inroads into TV via partnerships with cable
providers abroad. It offers a low-cost cable package in Australia
via Xbox through a partnership with pay-TV operator Foxtel,
designed to appeal to young male gamers, and has a deal with Sky
Broadcasting to enable co-viewing experiences through Xbox in the
U.K. In the U.S., AT&T U-verse subscribers can opt for an Xbox
in lieu of a DVR.
The notion of an "over-the-top" video service that bypasses
cable and satellite networks has been around for a long time but
generally has been held back by two main factors: programmers'
reluctant to license new players and cable, telco and satellite
operators' control over the access to the home. They've also been
held back by the limitations of the web itself: The infrastructure
just isn't there to support as many live simultaneous streams of
content as a popular live event like, say, the Super Bowl would
create.
To solve the "Super Bowl problem," as well as the complexity of
delivering video to phones, tablets and PCs, Verizon built two vast
data centers in Reston, Va., and Torrance, Calif., designed to
deliver live video over the web as reliably as any cable company.
Verizon's Fios TV service, of course, will be a customer.
"There are fundamental internet infrastructure issues to solve,
but will be able to do it at great economies of scale," said David
Rips, president of the division. "This would allow Fios, Comcast,
Hulu or Netflix or any other retailer become an MSO," or
multiservice operator, jargon for a pay-TV provider.
Mr. Rips said targeted advertising will be part of the initial
release, meaning a new revenue stream for those distributing TV on
the web. In the meantime, some players aren't going to wait for
technical perfection.
"Somebody is going to pull the trigger this year. It may not be
250 channels in HD, but it will be at a minimum a good handful of
channels with subscription on-demand and the ability to get the
content on lots of devices," said Braxton Jarratt, CEO of Clear
Leap, which also provides enabling technology for web-delivered
TV.
Said Mr. Rips: "It's going to be the Wild West for a while until
it settles down and matures and the economics settle out."
