Verizon: New OTT plays by HBO, CBS ‘opens up a lot of doors’

While Verizon today reported Q3 earnings and revenues close to analysts’ forecasts (see below) much of the earnings call was spent talking about its plans for wireless LTE delivery of live video, and the company’s outlook for broadband-delivered over-the-top services.

CFO Fran Shammo called last week’s news that HBO and CBS intend to go over the top directly to consumers a “positive step for consumers and the industry.”

“As far as over the top goes, the way I look at this is, this is great for the customer; this is great for the industry,” he said. “This shows that there are new innovative types of arrangements that are happening. And, as we said before, we’re having discussions with a lot of content providers around innovative models going forward. I think this sets a lot of stage… it opens up a lot of doors and it’s something optimistic for the future of the video business.”

Shammo talked specifically about two means of delivery, over the top into the home via broadband, and over the top via wireless to mobile devices.

He said Verizon already was starting to see uptake of OTT via wireless in the form of its deal with the NFL.

And, he predicted, the company’s nascent multicast network, which he said was ready as of this past August, will result in more live sports, events and concerts being delivered live to mobile customers.

“The network already is capable,” he said, adding that chipsets that can receive the signal – some of which already had started to appear in devices during Q3 — likely would be widely installed during Q4.

“We think it will take about one year for chipsets to ramp, to have enough volume to get the attention of content providers,” he said. “It opens up a lot of new avenues for us.”

Shammo said the revenue model for multicast broadcast to mobile has yet to be determined.

“Revenue share, ad sales, consumers pay… we’re not sure yet,” he said. “That will come in the next year.”

As for OTT into broadband homes, Shammo said, the acceleration in the ecosystem was evidence that content owners were ready.

“What this says is that the content providers have realized that there’s a whole population out there that do not subscribe to satellite TV or linear TV,” he said. “They’re trying to penetrate that Millennial base that does not have this type of offer and who want something smaller, more convenient for them.”

And, he said, that “brings in a lot of innovative type models of how to really attack some of the other segments of the marketplace.

“Do I think that in the near term this is going to decrease linear or satellite TV?” he said. “No I don’t. But I think it’s another avenue of how we open up the ecosystem with innovative models; and, that’s something we’re very, very interested in.”

Shammo also said that Verizon’s FiOS TV service, which continued to add customers in the quarter, was contributing “more and more net income,” and said revenue per customer was outpacing content costs.

To keep that ratio in line, however, Shammo said the company would increase the price to subscribers in the fourth quarter, as it did last year, saying it was one way to absorb content price hikes that come in January.

By the numbers:

Verizon added subscribers to its FiOS TV service in Q3, albeit at a slower pace than a year ago. The telecom said 114,000 new users joined, down more than 18% from the 135,000 it added in the year-ago quarter.

But, it improved on the 100,000 2Q adds and 57,000 1Q adds, giving the telco a healthy 292,000 new FiOS TV subscribers for the year. That slowdown in the growth of FiOS TV can largely be attributed to increasing penetration in its footprint, and a hold on further expansion to new markets.

On the Internet front, Verizon said it added 162,000 subscribers, up nearly 9% Y/Y.

Combined, the services helped Verizon ring up $3.2 billion in revenues, a 13.4% increase in FiOS revenues Y/Y.

Overall wireline consumer revenues, meanwhile, were up 4.5% Y/Y, the ninth consecutive quarter of more than 4% growth. Consumer average revenue per user (ARPU) was up 10.3%.

On the wireless side, Verizon had $21.8 billion in revenue, up 7% Y/Y.

Part of that is due to increased demand and usage of video.

“This quarter with the NFL agreement and the increase in the amount of video we’re seeing, this has been one of best quarters even in terms of customers stepping up to the next (level of service),” said Shammo.

Service revenues for the segment were $18.4 billion, while retail service revenues were $17.6 billion.

Verizon missed EPS by 2 cents, coming in at 89 cents for the quarter. Analysts had expected 91 cents.

Revenue of $31.6 billion was in line with Wall Street’s estimates. Verizon a year ago reported earnings of 77 cents per share on quarterly revenue of $30.28 billion.

Verizon is still projecting 4% consolidated top-line growth.

The stock was up more than 0.66% in pre-market trading, but shares slipped to a 0.14% gain by mid-day.

See the earnings release here.

Listen to the webcast here.

Stay tuned.

Jim O’Neill is Editor of Videomind and Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn