Many Wall Streeters question the prospects for Verizon’s FiOS TV service, and new Go90 mobile video platform, as they see consumers look to cut their outlays while competitors consolidate and innovate. But executives urged them not to worry as it introduces initiatives designed to appeal to millennials.
In a conference call this morning to discuss Q3 earnings, CFO Fran Shammo acknowledged that “the TV environment this past quarter was extremely competitive and continues to be.” FiOS added 42,000 video subscribers, less than many analysts expected, bringing its total to 5.8 million.
On top of that, FiOS video revenues will see “pressure” as many customers opt for its controversial Custom TV package — which offers fewer channels than the expanded basic bundle but costs about $20 less per month. (ESPN is suing, saying the offering that leaves the network out of the core package violates its contract, a charge that Verizon denies.)
But lots of people “only want to pay for what they watch, and don’t want to pay for 300 channels,” Shammo says. Since FiOS pays programmers based on the number of subscribers who receive their channels, as some switch to the skinny bundle (the CFO described the process as “right sizing”) “we’re seeing an incremental [profit] margin gain by people taking the Custom TV package.”
Shammo says he’s unfazed by Altice’s recent agreement to buy Cablevision, which vigorously competes with FiOS in the tri-state area around New York City. “We have a very viable footprint and we’re committed to that.”
The telco adds that it’s optimistic about its recently launched Go90 ad-supported streaming video platform, which features clips from Disney, Discovery, Scripps Networks, and Viacom channels as well as Web services including AwesomenessTV, Vice Media, Tastemade, and Maker Studios.
Milennials “don’t want linear TV content. They’re disconnecting cable,” Shammo says.
Verizon offered few specifics, but the CFO says “the initial feedback has been strong” even “without significant promotion….We are really pleased about the initial stages but this is very different from the linear TV model.”
He adds that the company plans to announce 48 exclusive content deals by the end of this quarter. “You can expect a flow of product enhancements and a video consumption model we can monetize in multiple ways.”
The telco offered its updates after unveiling Q3 earnings that topped Wall Street expectations. Verizon generated net income of $4.17 billion, up 9.9% versus the period last year, on revenues of $33.16 billion, up 5.0%. The top line beat the consensus prediction for $32.94 billion. And after taking out a one-time pension measurement adjustment, earnings came in at $1.04 per share, ahead of expectations for $1.02.
CEO Lowell McAdam crowed that FiOS’ customer growth numbers for phone, broadband and TV “improved from the previous quarter.” He adds that anticipates “future revenue growth from mobile over-the-top video, including digital advertising, and the Internet of Things.”
Verizon shares, which are off 3.8% so far in 2015, opened up about 1% after the announcement.