March 20, 2007 4:00 AM PDT
Broadband providers looking for sweeter deals?
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But the Internet is changing, and broadband providers have more reasons today to demand better partnership terms than they did earlier. For one, broadband penetration is now more than 50 percent in the U.S. And with all the consolidation that has happened in the cable and phone industries over the past few years, more subscribers are customers of fewer providers.
For example, at the end of 2002 Comcast had 3.6 million high-speed Internet subscribers. By the end of 2006, it reported a total of 11.5 million subscribers. With its acquisition of BellSouth, AT&T has become the largest broadband provider, with more than 12 million high-speed Internet subscribers.
What's more, consumers are starting to buy bundled packages of services from a single broadband provider. Not only does this encourage loyalty, but an integrated portal makes more sense for subscribers who want to access all their services from a single launch pad. Today, Comcast customers subscribing to high-speed Internet, digital voice service and cable TV, can access their e-mail, telephone voicemail and TV guide from the Comcast.net portal. The company's upcoming wireless phone service will also be integrated into the portal.
The phone companies are planning similar integrations. While Verizon has co-branded portals, it's also developing its own portal, called Verizon Surround, which is focused on content affiliated with the company's high-speed Fios service. Like the cable companies, Verizon offers a triple-play package of voice, video and data services that runs over the Fios all-fiber network.
Later this year, Verizon will offer subscribers the ability to program their digital video recorders from the Verizon Surround portal. Comcast also plans to offer that capability later this year through Comcast.net.
The content connection
Another key reason why the balance of power may tilt slightly toward broadband providers is the existing relationship that they have with big media companies for video distribution. The cable companies, especially, have long-established relationships with huge media companies, since they've been the primary source of distribution for more than 30 years. Comcast already offers a larger catalog of video-on-demand titles, some of which can be accessed from its Web site.
Verizon is also starting to bulk up its own portal with video content from deals it has struck for its TV service, which will eventually allow Verizon subscribers to view and access content from any kind of device, said Bill Heilig, vice president of consumer broadband product management at Verizon.
Meanwhile, Google is embroiled in what could be a multibillion-dollar lawsuit with Viacom, one of the largest media companies in the world. Google, however, has also successfully negotiated licensing deals with many entertainment companies, including Warner Music Group, CBS, and most recently, the BBC.
Experts say that large Internet companies do still wield a lot of power, especially since usage on their branded Web sites far outpaces that of any phone company or cable provider. According to Nielsen/NetRatings, Yahoo and Google each had more than 107 million and 105 million unique visitors, respectively, to their Web sites in February. Meanwhile, Comcast.net and all other Comcast-branded sites had only 14 million unique visitors. AT&T and Verizon Communications Web sites saw only about 13 million unique viewers each.
As a result, broadband providers, recognize that Internet companies are important partners. Because the Internet brand is very familiar to subscribers, it often helps keep customers loyal. Verizon's Heilig said he was surprised to see how much its co-branded sites reduced customer churn.
"People like the brand-name portals," he said. "I will be the first to admit that Verizon's start page isn't MSN, Yahoo or AOL."
But he added that as the market evolves, these deals will inevitably be revisited.
"I'm sure we will do a gut check in a year or two," he said. "Right now, the retention benefits are very material. But at some point the game may change, and we have the flexibility to change our plans."
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