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Verizon's revamped fees could lead to a la carte programming

Verizon wants to rattle the cages of content providers with a new viewership-based fee scheme.

The proposed plan calls for content providers being paid their fees for programming based on how many Verizon FiOS subscribers are watching their programs, The Wall Street Journal reported Monday.

Such a scheme would not reduce the cost of pay-TV for consumers, but could stabilize retail prices in the long run, according to Verizon, which is the sixth largest pay-for-TV provider with 4.7 million subscribers.

Possible boon for subscribers

"This is the first big step toward a la carte," cable television analyst Jeff Kagan said in an interview.

A la carte pay-TV model has been a consumer Holy Grail. It allows consumers to pay for programs they watch and not for the hundreds of channels they don't. It's been vigorously opposed by the pay-TV industry.

"This is the carriers getting on the customers' side," Kagan said. "That's the first time that's really happened." In the past, the carriers were content to pass on price increases to consumers and share the increased profits from those increases with their stockholders, he said. "Now that there are competitors moving into the space, now that cable television is losing customers, now that the marketplace is changing, it's on the customers' side."

"It's for their own self-serving reasons, but it's still beneficial to the customer," he added.

The current pay-TV model is broken, Kagan says. Carriers that deliver content don't have control over the price of the content they deliver. That's means they have limited means to control prices when consumers complain.

That worked when cable was the only game in town, but with the Internet, consumers can cut the cord to pay-TV and not only see what they want, the can see it at cheaper prices.

Currently, content providers charge fees for their programming based on the number of subscribers and  households it's delivered to—whether anyone in the household watches or not.

In negotiations

Verizon is currently in negotiations with several mid- and small-tier providers to put an a la carte scheme in place, the Journal reported.

Under Verizon's plan, it will offer a broad distribution of channels but pay for the programming based on the  number of unique eyeballs it attracts, or a minimum of five minutes.

Fees would be based on data from Verizon's set-top box data, not the industry-standard Nielsen ratings.

Verizon told the Journal it intends to propose the scheme to its big content providers when their contracts roll around for renewal, but given the reaction of the providers with whom they're already broached the scheme—lots of "head-scratching"—getting traction for such an arrangement may not be easy.

If Verizon's approach to fees became popular, it would likely shake up the revenues to content providers. Some companies could see a decline in revenue; others, a boost.

For example, according to data from analysts at SNL Kagan, the sports network ESPN averages a million viewers a day, while USA Network averages about 1.3 million viewers a day. Yet Verizon pays ESPN $5.04  per month per household, compared to 68 cents for USA.

Under the new Verizon scheme, USA might receive an income boost, while ESPN might take a revenue hit.

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