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Verizon CFO: Go90 Mobile Video Won’t Be Profitable in Next 2 Years

Telco sees slowdown in pay-TV business, as more new FiOS customers are broadband-only

Go90, Verizon’s recently launched mobile-video play to reach a generation of TV cord-cutters, will not be profitable for at least the next two years as the telco invests in content and marketing, CFO Fran Shammo said.

Verizon expects the free, ad-supported Go90, which bowed in October, to grow revenue over the course of 2016, while at the same time the new business will “create bottom-line pressure,” Shammo told investors on the company’s fourth-quarter 2015 earnings call Thursday.

At this point, Go90 viewing has surpassed internal expectations, according Shammo, and as a result Verizon has raised its targets for the service for 2016. The exec did not share specific metrics, aside from citing reports that Go90 apps have been downloaded 2 million times. The more important metric is engagement, Shammo said, with some Go90 users revisiting the service multiple times per day: “That’s important because that’s viable to the advertising community,” he said.

Go90 is available to not only customers of Verizon Wireless — which had 112.1 million retail connections at the end of 2015, up 3.6% year-over-year — but also to users with other carriers as well. The company has licensed or ordered content for the service from a range of suppliers, including AwesomenessTV, Vice, CollegeHumor, New Form Digital, Endemol Beyond USA, Discovery Communications, Scripps Networks Interactive and Viacom. This week, Warner Bros.’ Blue Ribbon Content, together with LeBron James’ Uninterrupted, announced a scripted sports comedy series will debut on Go90 in the spring.

Meanwhile, Verizon’s pay-TV business slowed dramatically in Q4, with just 20,000 FiOS TV net adds versus 116,000 in the year-earlier period. “We are starting to see more and more customers coming into FiOS on a broadband-only basis,” Shammo acknowledged. The telco had 5.827 million FiOS video subs and 7.034 million FiOS Internet subs as of the end of 2015.

Verizon will “refresh” its FiOS TV bundles to address “the increasing over-the-top video trend,” Shammo said. “Consumers want choice. They don’t want to pay for bundles they don’t use.”

Custom TV, Verizon’s skinnied-down bundle that lets customers pick themed channel packages on top of a base tier in an a la carte-like manner, represented about one-third of FiOS video sales in Q4 2015. ESPN, among others, had sued Verizon over Custom TV, arguing that distribution agreements required inclusion of their channels in the standard package.

On the call, Shammo said Verizon will adjust Custom TV “to be in compliance” with existing programming contracts. Asked if that means ESPN or other optional channels will be added to the Custom TV base tier, a Verizon rep replied, “Stay tuned” without elaborating.

Shammo also called out strong top-line growth at AOL, which Verizon acquired for $4 billion last year. Q4 operating revenue at AOL was $882 million, up 47% from $600 million in the prior quarter.

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