• by Jonathan Blum , July 20, 2006

Is it time for IP/TV? A new Verizon initiative tests the waters

If you want to see the future of Internet Protocol Television, otherwise known as IP/TV, go low-tech: Hop on a Greyhound and head for Keller, Texas.

Keller, a town of nearly 30,000 people, looks like any other small town: It has a Main Street, a church, and fast-food restaurants. But this humble town is also the launching pad for the next revolution in TV.

Last September, Verizon Communications rolled out its first all-optical fiber communications and TV plant in Keller. A hybrid of traditional TV and cutting-edge IP/TV, the plant is branded as FIOS TV, and it puts the communications business squarely inside the TV business.

“Everyone else is getting into the TV game,” says Greg Smith, executive vice president of Carat Fusion, a digital media services agency. “Why not the phone company?”

Verizon chose north-central Texas as much for convenience as for any other factor: The company maintains a large research center in suburban Fort Worth. Verizon has since also rolled out FIOS TV in about 50 markets.

TV may give a welcome lift to Verizon, whose voice communications revenues have dropped by almost 4 percent since 2004. Verizon rival AT&T, meanwhile, plans an IP/TV offering called Lightspeed. Both offer a hybrid TV product delivered through a partnership with satellite providers Dish Network and DirecTV.

Verizon’s FIOS plant sells phone service, data, and TV via a single strand of optical glass fiber; there are no copper coaxial cable lines or wire phone lines in the system. The strand, which has the thickness of knitting wool, runs unobstructed from Verizon’s local station out to the consumer’s home or office.

Because glass fiber uses light instead of electrons to move data, capacity is almost unlimited. The fiber can deliver all the TV, movies, sports, data, and calls that a consumer could want.

“The ability to offer niche content will be superior to cable in the short term, given the virtually unlimited channels,” says Brian Wieser, industry analysis director for Magna Global, a New York-based media firm.

Verizon has been quick in Keller and other FIOS TV markets to exploit its fat new superhighway. Content deals have come fairly quickly. Verizon programming director Walter Delph says the company began pursuing them in late 2005 and did about 100 deals in eight months. The company has signed content arrangements with Starz Encore Group, Black Entertainment Television, MTV Networks, and the Yes Network, among others.

Verizon is also pursuing niche markets: expanded video-on-demand and an international channel lineup including stations broadcasting in Spanish and Farsi.

“We see ourselves being able to market down to the smallest possible niche, to groups as small as 100 customers,” Delph says.

Verizon’s FIOS network is also testing a new interactive television application using Microsoft’s IP/TV operating system software, with a program guide similar to other cable guides.

Jim Brady, Microsoft TV senior manager, estimates that the merger between traditional television and IP/TV will be swift. “We are expecting more change in the next five years in TV than in the past 50 combined.”

Microsoft has dedicated a staff of 500-plus to build IP/TV applications and services, and is planning a full complement of interactive applications, such as video coupons for local advertising and ad-supported video-on-demand.

There are plans for VOD bumper ads and ad telescoping by which users can view longer versions of short ads at will. There are also plans for so-called fast-forward “speed bumps” that play short messages while viewers skim programming.

The richest area for IP/TV advertisers will most likely be the abundant bandwidth, which will allow subscribers to receive not only specific channels but targeted advertising within them.

“The whole idea of switching one single feed...to the right home has a lot of potential,” says Tracey Scheppach, video innovations director at Starcom USA.

So far, Verizon deems Keller a success. In six months, FIOS TV had captured about one-third of the market, according to the company.

Consumer reaction to FIOS TV ranges from ecstatic — one commenter on the tech blog i4u.com raves, “Thanks for giving us a reason to move [to Keller]” — to lukewarm: “The product is essentially on par with the cable plant,” says another i4u.com user.

Advertiser reaction also varies. Media strategists at the big agencies are watching IP/TV closely. But in north-central Texas, FIOS TV has a low profile. An informal survey of about half a dozen agencies in the Dallas-Fort Worth area, including Agency Interactive, Homes Millet Advertising, The Richards Group, and Moroch Advertising, showed nearly zero mindshare for FIOS TV.

“Never heard of it,” says Lisa Marchbanks, media director at Homes Millet, a boutique agency. “It is really hard to get people out of the standard streams they are standing in around here.”

Verizon says FIOS TV lacks local exposure because it’s new. Bill Kula, a local Verizon spokesman, says the company plans ad efforts for the markets it enters.

In the end, will FIOS TV mean a genuine merger of the Web and television? No one knows.

“The opportunity here is that it’s a new service from a company hungry to do business,” says Terri Richardson, group marketing manager at Microsoft TV. “Selling to a green field is always best.”