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You could say Verizon Fios started the hubbub around skinny bundles with its April 2015 launch of Custom TV, the first slimmed-down video package offered by a major multichannel video programming distributor.

But Verizon executive director of content strategy and acquisition Ben Grad, who was in on Custom TV from the beginning, would wonder what all the excitement was about. To him, coming up with what has triggered a flurry of skinny bundle packages from other distributors was just a simple case of giving the people what they want.

“We were listening to our consumers and what we believed our customers were interested in,” Grad said. “We built Custom TV to match their interest and needs.”

While some programmers took exception — ESPN sued Verizon, saying the package, which allowed customers to buy the network as part of a separate sports tier that included Fox Sports for $10 per month — they calmed down later after their networks were included in one of the two new Custom TV plans. Verizon said that after that modification, take rates for the package soared.

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While Custom TV may not be as skinny as it once was, Verizon has other innovations up its sleeve. Last year it launched go90, a free short-form video service, and CEO Lowell McAdam has said that “mobility” is the future for the video business. None of that seems to phase Grad, who along with the rest of the Verizon programming team will continue to hammer out deals.

That could mean content agreements for other parts of the company — Verizon purchased AOL in 2015 for $4 billion ,and is in the process of completing a $4 billion buy of Internet search engine Yahoo!.

“The biggest priority for us is leveraging our content relationships to offer growth across the company, not just the 5 million Fios customers or the 102 million Verizon wireless customers,” Grad said.

Grad and the rest of the team will have to do that without one of the best minds in programming, former vice president of content strategy and acquisition Terry Denson, who left Verizon in June. Denson, a former cable executive with Insight Communications, had joined Verizon in 2004 and wasn’t afraid to rattle some cages. Custom TV was developed on his watch; he was one of the first programming executives to say carriage deals should be tied to ratings; and he implemented one of the industry’s first regional sports network surcharges.

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No replacement has been named for Denson, and Grad said he and the Verizon programming team are continuing as they always had. The innovation pipeline is still humming with the customer in mind, he added.

“Ultimately I don’t know if there is a one-size-fits-all approach for consumers,” Grad said. “Some consumers are happy with the traditional bundle and some consumers are looking for something more like what we have with Custom TV. I think some consumers are looking at the proliferation of direct-to-consumer offerings, and they’re building their own bundle but going with traditional broadband. [And] we see things like 5G on the horizon; that opens up some additional options for consumers.”

Verizon Fios sub growth slowed again on a year-over-year basis in Q1.

The telco, which recently closed the sale of wireline assets in California, Texas and Florida to Frontier Communications,  said it added 36,000 Fios video subs in Q1, down from 90,000 adds in the year-ago quarter, and added 98,000 Fios Internet customers, down from 133,000 adds.

Verizon ended the quarter with 5.86 million Fios video subs, and 7.13 million Fios Internet subs. That equated to a Fios video penetration of 35.2% (down slightly from 36% a year ago), and Fios Internet penetration of 41.9% (versus 41.5%) in the year-ago period.

With DSL factored in, Verizon also shed 10,000 total broadband connections in the quarter, versus a net gain of 41,000 a year ago. Verizon ended the quarter with 9.21 million total broadband connections.

Verizon said about 78% of Fios Internet subs took tiers of 50 Mbps or more, and that 38% of Fios video sales in Q1 were for its slimmed-down Custom TV offering, which was recently revised into two different types of packages, including one with ESPN.

Verizon also added 46,000 Fios residential digital voice connections in the period, down from 59,000 in the year-ago period. It ended the period with 4.8 million Fios voice connections.

Verizon, which has embarked on a plan to expanding Fios into the Boston area, pulled in $3.52 billion in Fios revenues in Q1, up from $3.35 billion in the year-ago period.

On the wireless end, Verizon added 640,000 retail postpaid subs, ending the period with 112.6 million retail connections, a 3.7% increase, and 107.2 million retail postpaid connections, a 4.4% rise. Wireless revenues were $22 billion in Q1, down 1.5% as more subs selected unsubsidized device payment plans.

On a consolidated basis, Verizon posted earnings of $1.06 per share in Q1 2016, up from $1.02 per share in Q1 2015. Total operating revenues in Q1 reached $32.2 billion, up 0.6% year-on-year.

Verizon Communications, a little more than a decade after it launched its Fios TV and Internet service, is moving quickly toward what it believes is the future of the video industry.

It’s a future that hearkens back to TV’s over-the-air origins, where consumers can get all the bandwidth and content they want with no strings attached.

Verizon appears to be banking that mobility — long a buzzword in the video business, but one that hasn’t yet made a big dent in overall viewership — will take a dominant position in the next several years.

For the past year, the New York-based telco has been on a tear to remake itself into a 5G powerhouse:

• In February of 2015, Verizon agreed to sell Fios assets in Florida, California and Texas with more than 1 million video customers to Frontier Communications for $10.4 billion, a deal that is expected to close March 31;

• Verizon bought XO Communications’s fiber network in February for $1.8 billion;

• It launched FreeBee data, a sponsored data service that allows customers to download and watch certain video content without using up their wireless data plans, in January;

• It launched Custom TV — one of the first successful “skinny” video bundles — in April of 2015, revamping the package this February;

• It launched mobile-only, ad-supported over-the-top video service go90 in October of 2015;

• It purchased online icon AOL in June of 2015 for $4.4 billion.

BIG SHIFT AHEAD

Verizon’s recent moves point to its belief that a major shift in the video business is coming, Craig Moffett, principal and senior analyst at MoffettNathanson, said.

“It seems like they’ve made a complete reconceptualization of the video business inside of Verizon and have decided if there is an opportunity in video, it’s in wireless, location-based advertising,” he said. “If they’re going to win in that business, they’re going to have to disrupt the video ecosystem. It seems to me that they have decided that any ties they have to the status quo are a liability.”

Nowhere in the product set is that more evident than with go90. Launched in October, go90 has been downloaded by about 2 million users, has according to some reports. It was ranked No. 300 among all apps on the iTunes Store and No. 20 against all entertainment apps, according to UBS Securities telecom analyst John Hodulik.

Go90 is different than the other millennial-targeted mobile services in that — for now — it is fully ad-supported, meaning Verizon isn’t charging a monthly fee for the service. Customers can watch about 8,000 on-demand titles and stream content from MTV, Comedy Central, ESPN, Food Network, Discovery Channel, AwesomenessTV and others.

Increasing the number of go90 users is a priority, but it’s not the main point of the service, Verizon chief financial officer Fran Shammo said on a January earnings call.

“The key to us is not the downloads; the key is viewership,” Shammo said. “It’s around content and we will continue to add content that is favorable to all generations of population.”

Later, at the Deutsche Bank Media, Internet & Telecom conference on March 8, Shammo said that the addition of AOL’s 350 million users could help add needed scale to the service.

“Eyeballs will be the winner at the end of the day because the more eyeballs I can get to that platform, the more advertisers that are going to come and want to advertise, and therefore I can monetize the usage,” he said.

That strategy has emerged from Verizon’s past eff orts to pay more and more for additional wireless usage — efforts that haven’t worked in part because disposable income in the U.S. hasn’t really grown since 1991, Moffett said.

“Go90 is not about trying to create a substitute for Netflix,” Moffett said. “They’re not out competing with other video services in the traditional sense; they’re trying to create advertising inventory.

“They need to get customers to spend some time looking at their phones. If they can get customers to spend time engaged with the device, they are highly confident that there is a long list of advertisers who will pay for reaching those customers.”

In a research note, Hodulik recounted a meeting with AOL CEO Tim Armstrong, saying the company estimates there is an $80 billion near-term incremental opportunity in the ad space — $40 billion from video and $40 billion from mobile. AOL held 40 meetings for go90 with advertisers during the fourth quarter, Hodulik said. It will spend 2016 building an audience for the service and expects “real traction this year.”

All this seems like a huge departure from when Verizon launched Fios as a means to tap into the lucrative TV market and preserve what at the time was a rapidly declining wireline business.

When Verizon introduced Fios in Keller, Texas, in May of 2005, it — along with AT&T’s U-verse — was supposed to be the last nail in cable’s coffin. It spent $20 billion on a massive fiber upgrade and unleashed unheard-of data speeds (up to 50 Mbps!) on a bandwidth-hungry public.

Now cable is enjoying a resurgence — Charter Communications and Time Warner Cable both had their first positive video-customer growth in nearly a decade in 2015 — and Verizon’s Fios TV has seen its growth slip.

But Verizon’s reversal of fortune doesn’t mean the Fios experiment was a failure. For many people who follow the company, Fios will remain a key component in Verizon’s new direction and will play an additional role. Verizon’s new mantra is mobility.

Lowell McAdam, Verizon’s CEO, said as much in 2014, telling an industry conference its then-recent purchase of Intel’s OnCue video service would enable it to take Fios content over-the-top and make it mobile on a nationwide basis.

The telco’s strategy is to use its existing network to deliver wired broadband and television service throughout its territory while also serving as a backhaul network for its wireless assets. Chief network officer Kyle Malady said Verizon fiber currently passes about 20 million homes, and the telco has already started trials for the next generation of wireless technology — 5G — with its promised 1 Gigabit-per-second speeds.

In the meantime, the company still sees opportunity in wireline service.

“From what you’ve seen from us, obviously there is no one answer,” Verizon spokesman Ray McConville said. “There is no ‘one-size-fits-all.’ We’ve adapted ourselves to have something for everyone.”

In some ways, Verizon is a walking contradiction. It has said it wants to grow the Fios TV business, yet it sold a huge chunk of video and broadband subscribers last year to a CLEC. In an era when rival cable companies are scrambling to accumulate greater and greater scale, Verizon appears to be taking the opposite stance.

BEEFING UP REGIONALLY

The main thrust behind the recent asset sales has been to cluster its operations in the more densely populated Northeast and Mid-Atlantic regions, Malady said. In addition to being able to target a bigger pool of homes for service, the concentration also makes its network more efficient to operate.

Both video and broadband growth have slowed. Fios TV added just 20,000 video customers in the fourth quarter, its lowest quarterly growth ever, and Fios Internet added 99,000 subscribers, down from 145,000 additions in the prior year.

Shammo said Verizon still sees growth opportunity even in its more-mature Northeastern markets. At about 5.8 million video customers at the end of 2015, Fios TV has about 35% penetration throughout its footprint. That’s about the same as Charter Communications, the cable operator that many in the industry believe has the greatest video-subscriber growth potential of any U.S. incumbent.

Shammo isn’t the only one who believes Verizon can squeeze more growth out of the wireline network.

According to Barclays telecom analyst Amir Rozwadowski, Fios TV is expected to grow to about 5.9 million customers by 2017, up 5% from 2014. At the same time, Fios broadband customers are expected to rise 18% to 7.8 million customers by 2017.

The Fios fiber network isn’t just tethered to residential TV and broadband service; it also carries data traffic between wireless cell sites. That means that Verizon will be ready when video traffic increasingly shifts to wireless, a move many pundits see coming.

According to Cisco Systems’s Visual Networking Index, mobile video traffic accounted for 55% of all mobile data traffic in 2015; by 2020, 75% of the world’s mobile data traffic will be video. That means robust backbone networks will be more important than ever.

“The next five years are projected to provide unabated mobile video adoption,” the report said. “Backhaul capacity must increase so mobile broadband, data access, and video services can effectively support consumer usage trends and keep mobile infrastructure costs in check.”

That’s where the Fios backbone network and the telco’s eff orts to make 5G wireless technology a reality come in.

“At the bandwidths they’re talking about [for 5G], the nodes are going to need to be close together, and they are going to require fiber,” Malady said.

Fiber also becomes an extremely important factor once wireless video traffic increases, as anyone who has tried to stream the season premiere of a popular show like Game of Thrones knows. Wireless streaming is only as good as the pipes behind the towers transferring the data.

“The network behind it is the key, because that’s where a lot of these things get choked at peering points,” Malady said. “It all comes down to having good fiber connections between these places to move the bits.”

But in the bandwidth business, demand eventually outpaces supply. Verizon’s purchase of the XO Communications fiber network will mainly help its enterprise business, but it will also help with wireless backhaul, particularly between smaller cell sites. It’s capacity that Malady said is more than needed in today’s environment.

5G’S FIBER FOUNDATION

“I have been around for 27 years and I haven’t seen the growth curve stop,” Malady said. “It just keeps going up and up and up, and people’s demand for bandwidth continues to grow, and that’s why we think we’re pretty well-positioned with our fiber assets, and that’s why we’re requiring more.”

Touted as the next generation of wireless, 5G still has a way to go, as standards still haven’t been created for the service. But like its predecessors before it — 4G and LTE — 5G is the next evolution in wireless technology, offering speeds 30 to 50 times faster than 4G, reduced latency and improved power efficiency. Verizon has been at the forefront of the technology, beginning field tests of the technology earlier this year and predicting a limited commercial rollout as soon as next year.

“Just like we were out ahead of the market on LTE, we’re ahead of the market on 5G,” Malady said. “By definition, at the bandwidth we’re talking about, cell sites and nodes require a lot of fiber. Fiber is a big piece of the equation.”

Shammo is equally enthused.

“We believe that 5G is near-term, not far-term, and it is going to bring a whole different dynamic to the industry,” Shammo said at the Deutsche Bank conference. “It is going to give another growth profile for this industry.”

Verizon is giving Go90, its new “mobile-first” OTT service some time to catch on and evolve in the coming years, but the company acknowledges that it would like to see the offering attract more eyeballs.

Go90 offers a new strategic direction that’s pleasing for advertisers, “but we have to get the viewership up,” Fran Shammo, Verizon’s EVP and CFO, said Tuesday at the Morgan  Stanley Technology, Media and Telecom Conference in San Francisco.

He said Go90’s ability target younger audiences is worth more than a “blanket TV ad” that spans multiple segments to some advertisers that are trying to connect with millennials.

 “This was not something launched last year that would take off immediately like a new smartphone,” Shammo said of Go90, noting that the service has seen some traction around its NBA coverage, music offerings and content from partners such as AwesomenessTV. “This is going to be a progression and evolution for us over the next two to three years.

“We’ll continue to evolve this product through 2016,” he said.

And it will continue to monetize Go90 via advertising models, including FreeBee Data, a sponsored data service that Verizon’s been trialing, but will launch commercially on March 5.

“Advertisers are excited about the prospects around Go90,” he said.

Shammo was also asked to discuss Custom TV, FiOS TV’s slimmed-down offering that was  recently reshaped and split into two packages, including one that now includes ESPN.

Shammo said the take rate under the revised Custom TV offerings are at about 40%, noting that FiOS TV is also seeing some uptake of its add-on packages.  

Looking ahead, the exec sees “more conflict between content and linear TV providers…I think it’s just the nature of what’s going to happen in this ecosystem.” But he was likewise hopeful that content distribution deals for Go90 will give Verizon more leverage in its carriage negotiations for FiOS TV.

Shammo also said Verizon was interested, but not yet ready to commit, to making a move for some Yahoo assets that are on the block.

“We’ll look at every single opportunity, whether it's an opportunity to divest some of our portfolio or whether it’s an opportunity to acquire that we believe will increase our shareholder value,” he said. “Yahoo falls into that bucket.”

He said it’s premature to commit to anything beyond that “because I don’t think anybody knows what’s under the hood yet…That’s just an opportunity that we’ll look at.” 

FiOS TV, which shook up the pay TV universe last year with the introduction of Custom TV, a skinny bundle without sports juggernaut ESPN, has revamped that offering, introducing a new Custom TV package – Sports & More – that includes the Worldwide Sports Leader for the same price.

Custom TV subscribers still have the option of selecting a sports-free package -- which FiOS is calling Custom TV Essentials. The difference is now they also have the choice of  selecting an option that includes sports channels -- Custom TV Sports & More -- for the same monthly price. 

ESPN had chafed at being left out of the original Custom TV package, and even went as far as suing Verizon over breach of contract, but that suit never seemed to move forward.

But dropping ESPN from Custom TV seemed to fuel speculation that the once must-have cable network was losing steam, which was exacerbated by Nielsen data that showed the channel had lost about 3 million subscribers in 2015.

Disney chairman and CEO Bob Iger hinted that ESPN had worked out a deal with Verizon on the media giant’s fiscal first quarter conference call, adding that the sports channel was in talks with several skinny bundle and OTT service providers. While Iger and other content and distribution CEOs have pointed out that fatter bundles still appear to be the most popular with viewers, ESPN seemed pleased with its addition to the Custom TV tier.

“We are encouraged by the changes that Verizon has made to Custom TV," ESPN said in a statement. "We expect the vast majority of Verizon subscribers to continue to get ESPN as part of their Extreme HD or Preferred HD package and we welcome the opportunity for additional subscribers to enjoy ESPN and ESPN2 as part of the new entry-level Custom TV offering."

After all the hype, Verizon said it will introduce new Custom TV bundles this Sunday (Feb. 21) aimed at appealing to a broader range of customers, adding that the new packages are designed with the same goal as the original: “to give customers the flexibility and choice to only pay for the types of channels they want and not the ones they don’t.”

The new plans are:

Custom TV – Essentials: Including about 75 channels such as Discovery Channel, Lifetime, History, Bravo, Fox News, Nickelodeon, MSNBC, CNN, Hallmark Channel, FX, Food Network, Disney Channel, MTV, Spike, USA and Turner Classic Movies.

Custom TV – Sports & More: All the regional sports channels in the customer’s service area, as well as about 55 channels such as ESPN, ESPN2, ESPNU, Fox Sports 1, NBC Sports Network, the NFL Network, and non-sports channels including Cartoon Network, CNBC, Syfy and TNT.

After choosing their plan, customers can enhance their channel lineup by selecting up to three additional, genre-based add-on packs for only $6 each – Movie Lovers Pack, Kids Teens & Family Pack, and the Global Sports Pack.

Custom TV customers will also receive the Fios TV Local package, which includes the customer’s local broadcast channels and other local programming.

“For many customers, less is more – they would rather pay less and get more of the content they are actually interested in,” said Verizon Consumer and Mass Business Group president Tami Erwin in a statement. “The original Custom TV has proven very popular since we launched it last year, and we’ve incorporated our customers’ feedback to make the next generation of Custom TV even better with a simpler choice and a much wider variety of channels available.”

Custom TV triple plays with Fios Digital Voice and Fios Internet with symmetrical upload and download speeds of 100 megabits per second, start at $69.99 per month online. Standalone versions of both packages are prices at about $54.99 per month each.

Customers that want the most content can also still purchase Verizon’s more traditional Fios TV plans such as Preferred HD, Extreme HD or Ultimate HD.

CBS Sports Network, apparently one of the few sports channels that doesn’t object to being placed on a tier, has agreed to a deal with Verizon Communications’ FiOS TV for inclusion in its somewhat controversial Custom TV service.

CBS Sports Network, which doesn’t have the same carriage requirements as larger sports channels like ESPN and Fox Sports 1, which have objected to the service, will be available on Custom TV’s Sports Channel Pack beginning on May 1.

FiOS launched Custom TV on April 17, touting the service as offering consumers more choice in the channels they do and don’t want to watch. For $54.99 per month, customers get access to 35 base channels – including AMC, CNN, HGTV and Food Network – and can select two of seven genre packages including: Kids, Pop Culture, Lifestyle, Entertainment, News & Info, Sports and Sports Plus.

The deal comes the same day that ESPN filed suit in state Supreme Court in New York against Verizon, claiming Custom TV breached its carriage agreement. While no details were released to the public yet, typically channels like ESPN are required to be carried on the most widely distributed package and are generally prohibited from being placed on a tier. Networks like CBS Sports Network, usually don’t have such requirements. For example, in the New York area CBS Sports Network is available on the Sports Entertainment Package for Comcast customers, the Sports & Entertainment Pak for Cablevision customers and the Preferred TV package for Time Warner Cable customers.

The 24-hour sports network televises nearly 600 live events and over 3,000 hours of live programming, including college football and basketball and professional sports.

“While consumer choice is at the heart of our Custom TV product, when customers make their choices we want them to have the best experience and the most robust package possible,” Verizon vice president, content acquisition and strategy Terry Denson said in a statement. “The addition of CBS Sports Network does just that, with a whole suite of programming that will satisfy a sports-lover’s craving for games, features and analysis.”

In addition to being available on Custom TV, CBS Sports Network will continue to be available to subscribers in Verizon’s FiOS Extreme HD package.

“We are pleased to make CBS Sports Network a part of the new FiOS Custom TV lineup,” said CBS president of television networks distribution Ray Hopkins in a statement. “We are confident that our expanding lineup of premier live programming will be a favorite among Verizon’s sports fans and that this new option will help continue grow our distribution.”