Verizon’s Fios video net additions in 4Q17
A primary driver of Verizon’s (VZ) wireline component is its Fios service. Verizon’s Fios is a fiber-optic network service that provides users with video, voice, and Internet services. The company is well positioned with Fios but lacks scale in broadband and video service. In 4Q17, Verizon lost 29,000 Fios video customers, compared to 21,000 net additions in 4Q16.
In 4Q17, Verizon’s Fios video penetration declined by 200 basis points to reach 32.3%, compared to 34.3% in 4Q16. This reduction was primarily driven by softer linear TV demand as customers migrate to over-the-top (or OTT) offerings and competitive promotional offers.
The online video streaming market in the US is a crowded segment. OTT video streaming services deliver content directly to customers via the Internet as an alternative to subscribing to cable or satellite services. Hence, OTT offerings slow pay-TV customer momentum as a result of cheaper online alternatives. This phenomenon is known as “cutting the cord.”
More users are opting for OTT over higher monthly satellite and cable bills. According to Digitalsmiths 3Q17 report, approximately 36.8% of pay-TV customers pay more than $100 per month to their service providers. Netflix (NFLX) and Amazon’s (AMZN) Prime Video are the leading firms in the online video streaming space.
In 4Q17, Netflix gained 8.3 million subscribers, while Amazon maintained its practice of not disclosing its Prime membership in its 4Q17 financial results. Consumer Intelligence Research Partners (or CIRP) estimates that Amazon finished 3Q17 with 90.0 million Prime members in the US, implying that the company gained 5.0 million Prime customers in 3Q17.