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July 29, 2009
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Verizon Communications (VZ) announced yesterday that it has entered into a major distribution agreement with Viacom (VIA)-promoted movie channel EPIX to offer multi-channel entertainment services. The deal was announced following Viacom's second-quarter earnings results.
Verizon will carry the TV channels and online services promoted by EPIX on its FiOS network (offering video and Internet services) starting from Oct 1. Verizon will offer EPIX-promoted TV channels via standard and high definition (HD) mode, broadband, video on demand and its V Cast wireless multimedia service. The deal makes Verizon the first distribution partner of the premium multi-platform channel EPIX.
Formed in April 2008, EPIX is an entertainment joint venture between Viacom (through its Paramount Pictures unit), Metro-Goldwyn-Mayer Studios and Lionsgate (LGF). Viacom is the major investor in the joint-venture with 42% stake.
The EPIX deal represents a significant milestone for Verizon, enabling the leading wireless operator to broaden the service coverage of its FiOS footprint. The company's 2.5 million FiOS TV customers will have access to premium channels, video on demand and Internet services that bundle multiple blockbuster movie titles and other entertainment services.
Expansion of its fiber-to-the-premises network (delivering FiOS TV and FiOS Internet services) remains an integral part of Verizon's long-term growth strategy. The company continues to broaden market penetration of its FiOS TV services, which currently averages roughly 23% across all markets. Since 2004, Verizon has spent approximately $23 billion to build the FiOS network infrastructure.
Subscriber accretion also remains healthy for FiOS TV as reflected by approximately 300,000 new additions registered in each of the last two quarters. Moreover, Verizon's FiOS Internet service booked a record 303,000 net customer additions in the second quarter of 2009. Moving forward, the EPIX deal will further boost customer adoption of the company's FiOS services, thereby driving subscriber accretion and revenue.
Verizon's substantial investment in the FiOS infrastructure and the ongoing fourth-generation (4G) wireless network upgrade initiatives are expected to strengthen the company's market position against its key rivals, especially AT&T (T). However, we remain concerned over the persistent access line losses to competition, which may continue to constrict future earnings performances. Consequently, we maintain our Hold rating for Verizon.
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