Verizon to Launch Streaming Service to Rival Netflix

Verizon Communications (NYSE:VZ) plans to launch a standalone service that will allow subscribers to watch movies and television online.

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The phone company, which only recently branched out into TV, is talking with prospective programming partners about the service, which would be introduced outside of markets where it currently offers its broadband and TV package, known as FiOS.

The service would be made available to some 85 million U.S. households in a fresh challenge to Netflix (NASDAQ:NFLX) and the traditional cable TV business. The service could be rolled out as soon as 2012.

The package of programming would be limited in scope, said two people with knowledge of the plans. Another person said the focus would be on packages of movies, similar to Liberty Media’s (NASDAQ:LSTZA) Starz Play and Viacom’s (NASDAQ:VIAB) Epix. It also might involve children’s programming from a partner like Walt Disney (NYSE:DIS).

Epix’s exclusive online-streaming contract with Netflix expires next September, allowing other services to negotiate with Viacom for Epix’s package of movies from Paramount (NASDAQ:VIAB), Lions Gate (NYSE:LGF), and MGM Studios.

Viacom Chief Executive Phillipe Dauman said at a conference this week that his company would be open to negotiating with other broadband only services.

Verizon has been exploring the possibility of a streaming service for the last two years. A lot of the discussion with programmers has centered around fees, though programmers have also been concerned with the possibility that a deal with Verizon could hurt their existing relationships with cable operators.

Though any Verizon service would only offer a limited package of TV shows and movies at first, making it unlikely to have an immediate impact on cable sales, the launch of an online video service by a major company like Verizon will only add to the uneasiness in the pay TV business.

Companies that offer cable and satellite subscriptions are concerned that customers will drop their services in favor of cheaper Web-based services. Verizon would likely price any service to compete with Netflix, which charges just $7.99 a month for unlimited streaming.

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Over the last few years, traditional cable operators have been steadily losing video customers to satellite and phone companies that have replicated the cable model. Now the fear is that Web rivals like Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) will further disrupt the $100 billion a year cable industry. Over the summer, Netflix surpassed Comcast (NASDAQ:CMCSA) in total subscriptions.