• Net Neutrality in Focus If Verizon Launches OTT Pay-TV Service Using Intel Media Assets

    This morning Verizon finally made official what has been rumored for months - its acquisition of Intel Media's assets, including its OnCue and its IP-based TV set-top box. With the deal (plus other recent acquisitions of upLynk and EdgeCast), Verizon is now well-positioned to launch an over-the-top pay-TV service outside of its FiOS footprint.

    If and when it does so, then last week's net neutrality ruling takes on even higher importance, because incumbent cable operators/broadband ISPs would either have to allow Verizon's traffic through, unfettered, creating direct OTT competition for their core pay-TV services, or discriminate against Verizon, creating a perception of anti-competitiveness and no doubt, a PR firestorm.

    A Verizon over-the-top pay-TV service (or "virtual MVPD" - Multichannel Video Programming Distributor in regulatory-speak) using OnCue could be very compelling. Potentially, it would deliver the full collection of linear TV channels plus VOD and cloud-based DVR to an IP set-top box that would, in theory, be completely integrated with mobile devices and apps. A bonus would be seamless integration of online-only sources, including quasi-competitors like Netflix, Hulu Plus and Amazon, not to mention the vast array of online original programmers. Such a service would be the first true blending of traditional pay-TV and online video in one modern interface with unified content discovery.

    Because pay-TV is a saturated market, essentially the only subscribers Verizon would attract would be existing subscribers of another pay-TV provider in whose footprint Verizon would be operating. So subscribers would keep their current broadband provider, but possibly switch to Verizon for pay-TV. This scenario puts the net neutrality question front and center.

    Beyond net neutrality, there's the issue of whether incumbent ISPs would reduce usage caps to handicap unlimited use of the Verizon OTT service (today's caps, where they even exist, are relatively roomy for all but the heaviest TV viewers). Another big question is whether other incumbent pay-TV providers - most likely Comcast, Dish or DirecTV - would in turn launch their own OTT pay-TV service, completely upending the traditional structure of the pay-TV industry. Last but not least - might another tech giant (e.g. Google, Apple, Amazon, etc.) join the fray with its own OTT pay-TV service? Questions, questions.

    For now, in its press release, Verizon mostly focuses on how Intel Media's assets will enhance its FiOS video service and will be integrated with its 4G LTE wireless service. But once these initial integrations are complete, it seems almost inevitable that Verizon will try to leverage the Intel Media assets further by launching some type of OTT pay-TV service. When it does, major industry reactions will follow.