VIDEO—Verizon Preps to Go Online in Battle With Time Warner

AOL Time Warner will get a new kind of competition soon as Verizon Avenue, Verizon Communications’ new broadband unit, gets ready to offer video on demand, cable channels and Internet service to apartment and condominium dwellers in the Valley and Ventura County later this year. Larry Plumb, a spokesman for Verizon, says the company is poised to make inroads into the multi-housing unit market, often overlooked because of the complicated deals cable providers must make with landlords and real estate investment trusts. “We’re offering service strictly to apartment units and condominiums, which represent a significant part of the market,” Plumb said. Eric Brown, general manager for Time Warner Communications in Chatsworth, said his company is not threatened by anything Verizon does in the Valley regarding broadband technology. “We have our own video-on-demand service and people are responding well to it,” Brown said, adding that a “true” video-on-demand service one that allows a customer to watch any movie at any time will be rolled out sometime in the next two years. Plumb would not say how many households Verizon is targeting in the Valley, citing ongoing contract talks with landlords and condominium complex owners. Time Warner serves 125,000 customers in the Valley. Michael Thompson, vice president of Verizon’s Video Networking Group, said the company anticipates it will have more than 2 million multiple dwelling units throughout the country under contract for the service within five years. The company will focus on certain areas, including the San Fernando Valley, because of the high number of multiple dwelling units and the “opportunities they represent.” Verizon’s plans are bolstered by its efforts to sign exclusive contracts with studios that would offer their films through Verizon’s high-margin video-on-demand service. But the company said those agreements are still to be worked out. The deals, however, are exactly what Hollywood studios may be looking for giving them 100 percent of the pay-per-view charge in exchange for a negotiated monthly per-subscriber fee. “It’s going to be interesting to see how they can make money doing that,” said Jonathan Kramer, a broadband analyst and president of Los Angeles-based Kramer.firm Inc. Verizon would not say how much studios would have to pay per subscriber. Thompson said studios could also opt for a revenue-sharing plan that would see most of the pay-per-view revenue go to Verizon. Various broadband services around the country now reach about 400,000 users. However, Thompson pointed out that Verizon’s model also would bring Internet and telephone service to households along the same lines. Verizon’s version of video on demand will differ markedly from most existing services which now offer films at certain times of day, rather than offering them at the time they are requested by customers. Like AT & T; Broadband, Verizon is counting on the appeal of movies coupled with the convenience of pay-per-view, Internet and telephone service all in one bill as the strongest selling points. Verizon is working with EMC Corp. and Hewlett-Packard Co., among others, on technology that will deliver high-quality video and sound at 3.4 megabytes per second. Moreover, the company is negotiating with suppliers for descrambling boxes. Plumb says Verizon expects to begin offering the service by year’s end in the Valley. Verizon’s jump into the broadband market comes more than a year after its creation, following the merger of Bell Atlantic and GTE in 2000, making it the second largest telephone service provider in the country. Whether Verizon can make its broadband service fly is another question. Given telephone companies’ checkered history in the cable TV market, Kramer said, Verizon must prove it’s in the business for the long haul. “There is a history of telephone companies getting into the market and pulling out quick,” he said. “The question is whether this is the core business they want to be in. And the answer’s been consistently no.” Pacific Bell for instance, spent more than $100 million to set up its own cable system in the mid-1990s, only to scrap it before the system ever went on line. Likewise in 1996, former Midwest Baby Bell Ameritech bailed out of the cable business just a few years after buying its way into it. Verizon’s move into the broadband market comes after it called off its acquisition of struggling NorthPoint Communications Inc. last November. NorthPoint has since folded and its assets were acquired by AT & T.; Verizon spokesman Larry Plumb said the company is committed to its broadband effort. “We’re offering residents and tenants in multi-unit buildings a superior alternative to cable modems and high-speed Internet,” he said.