Fall 2007

Wave of the Future

Terry Denson, Verizon’s vice president-FiOS TV content strategy and acquisitions, explains how fiber optics is revolutionizing high-speed content delivery.

1. Well, let’s start at the beginning. Verizon FiOS TV is one of the new generation of so-called telcos. What does that mean?

FiOS is actually the brand name for Verizon’s fiber to the home technology, which will deliver video, television, broadband, data, and actually telephone service as well. Traditionally, telephony comes over copper wire. We are the only provider that uses fiber all the way to the home on a mass scale.

2. Why is that significant?

The advantage of fiber optics is twofold. One is that it can transport vast amounts of data—video data, broadband data, voice data. So it’s got unparalleled capacity to actually transport content or data. But it’s not only in amount but also in speed. The other advantage to the fiber is content clarity. You’ll have the best picture quality that you can possibly have because there is absolute minimum degradation through the fiber.

3. What’s the difference between traditional cable and satellite and this kind of service?

It’s not so much the difference in what we can put in to the marketplace, because everyone’s allocating their bandwidth to be as competitive as they possibly can be. From any reasonable perspective, you’re not going to see much difference in terms of the speeds they’re offering. Here is the difference though. Both cable and the telephone companies have got one pipe into the home, and for cable, what they do is they allocate the bandwidth within that particular pipe. When they offer that speed, they are going to be dedicating bandwidth and it means that they won’t be able to offer other services that we may actually be able to offer. So you really have to look at it holistically in terms of the amount of content that can be pushed through the pipe.

4. So capacity is the greatest advantage?

That’s right, because the capacity really enables everything else. The capacity enables us to offer those more dynamic speeds without compromising the delivery of other services.

5. What about video-on-demand programming?

We’ve got over 10,000 titles available in video-on-demand. I think VOD really captures the essence of the evolution in consumers’ behavior. Whatever it is you may be interested in, it allows you effectively to create your own virtual channel that’s interest-based. What VOD allows to happen is, instead of it being vertical, you get this horizontal experience where you can see the 50, 80, 100 titles in any particular category. Not only do you get to watch them when you want to watch them, but you get to watch them as you’d like to watch them.

6. In your service, the Internet content will be available on the television via a box on top of the television?

Right. When the customer signs up for the service, a set-top box is required and, as part of that service, the customer will be able to engage what they call Internet-delivered television. Now, we haven’t launched this yet. We’re currently testing. One of the challenges is that the consumer has a certain expectation of quality from the living room experience, and the evolution of content distribution over the PC has trained us to have lower expectations. That’s the bigger challenge right now in terms of the amount of content that we can offer. If most of the content delivered via the Internet is of a certain bit rate, then when you blow that up on your television screen, it doesn’t look very good. It kind of looks like a 1980s video game.

7. What’s holding up the ability to make that jump from the Internet to the television?

It is primarily a function of compression technology. So the idea here is to be in a position where we can compel more content providers, who typically are only distributing content over the Internet, to have that content produced at a certain quality. So if it’s streamed over television, the customer experience would be close to, if not the same as, the traditional television experience.

8. What’s the benefit of telcos to content creators, to the creative community?

I think the benefit to the content creators—and this was part of our distribution strategy—is that we provide more voices and more opportunities. So whereas many content creators voice frustration because they just can’t be seen or heard, we provide opportunities in much the same way as the unlimited capacity of the Internet. The Internet has allowed more people, more content creators who never would have seen the light of day to actually create some cultural phenomenon. We can do that with our service as well. But we do it in a traditional viewing media, which is, I think, still the most powerful medium in the country.

9. Are telcos ultimately on a collision course with cable and satellite services?

We’re direct competitors, so if direct competition means collision, then that’s absolute. By 2010, we expect to have 3-4 million subscribers, which would give us a market penetration of 20-25 percent. But ultimately it is a large pie and no one really knows what the next wave of services is that’s going to be created. What we do know is that there is a relatively finite number of households out there, and the question is, where are they getting their content from—whether it be video services, broadband services or telephony services. Is there other competition that may come in that could marginalize our position or the cable’s position or satellite position? You turn back the clock 10 years, all we were looking at in the multichannel distribution world was cable television. So there’s always going to be some service that’s going to be created that hasn’t been around before that consumers want.

10. Do you see the influence of telcos increasing?

Well, I’d like to say that we were the inevitable wave of the future. I think the reality of it is that right now we have assumed a leadership position in distribution technology and opportunity for both consumers and content creators, content providers as well. From a competitive perspective, because it is a competitive industry, what’s going to happen is that the competition is just going to come up with their own solutions to deliver and make better services. I think it benefits everyone actually. But I don’t think we’re going to render the competition obsolete. In fact, most of the cable providers already have plans afoot to create distribution platforms that rival ours. But again, the net result of our entry in the market is more opportunities for content creation, more opportunities for content providers. At the end of the day, content matters. You have all this other stuff that goes on, but you can have the fanciest set-top box and the fanciest television, but the reason you have all that stuff is so that you can consume content.

10 Questions

Question and answer sessions with prominent figures outside the Guild about current creative and business issues.

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