TVBizwire

Potential Game Changer: Verizon's FiOS Wants to Change the Way Distributors Pay for Programs WSJ

"Verizon, whose FiOS TV is the nation's sixth-biggest pay-TV provider, with 4.7 million subscribers, has begun talks with several 'mid-tier and smaller' media companies about paying for their channels based on audience size, according to Terry Denson, the phone company's chief programming negotiator," writes Shalini Ramachandran in The Wall Street Journal. [Note: The WSJ is behind a pay firewall, so you might be charged to read this article.]

The story adds: "He declined to identify any of the media companies. Under existing arrangements, distributors like cable and satellite operators pay a monthly, per-subscriber fee to carry channels based on the number of homes in which they agree to make the channels available, regardless of how many people watch those channels."

The story reports: "Verizon would like to offer broad distribution of a 'significant number of channels,' including independent networks and smaller outlets. But each channel would be paid solely according to how many subscribers tuned in each month for a 'unique view,' or a minimum of five minutes, Mr. Denson said. Viewership would be measured by Verizon's set-top box data, not Nielsen ratings."

Says the story: "If broadly accepted, Verizon's proposal could have a far-reaching impact, potentially hurting revenue for some companies but improving others. Many channels owned by big media companies are available in nearly all the roughly 100 million households with pay TV, according to media researcher SNL Kagan. And while many of the most-popular channels earn the highest fees, big disparities exist, particularly for sports channels, which cable and satellite operators view as particularly valuable."

The article then runs some numbers: "Last year, for example, Walt Disney Co.'s ESPN averaged 1 million viewers watching its programming live on any given day and up to seven days after broadcast. That was slightly less, according to Nielsen, than the 1.3 million who were watching USA Network, owned by Comcast Corp.'s NBCUniversal. Yet distributors like Verizon paid ESPN an average of $5.04 a month per household last year, according to SNL Kagan, while USA got just 68 cents a month."

The report adds: "Viacom, which owns channels such as Nickelodeon and MTV, has said that its channels represent 20% of the aggregate ratings of cable networks, but SNL Kagan data show it receives just 7.4% of total cable fees. A Viacom spokesman said that the company wasn't aware of Verizon's proposal.

"One cable network executive said that similar ideas have been floated in past years, but they never gained traction because distributors attempted to cap how much they would pay for highly rated channels. The executive said that 'unless there is a giant seismic shift' in the TV landscape, the proposal is unlikely to gain much support from programmers."