Layer3TV Said in Deal With Verizon to Sell TV-Internet Bundle

(Bloomberg) -- To entice customers from pay-TV providers Comcast Corp. and RCN, cable start-up Layer3TV is turning to an unlikely ally: Verizon Communications Inc., one of the nation’s largest internet providers. 

Verizon is letting Layer3TV sell a bundled TV package including its fiber internet service to customers in Washington, D.C., according to people familiar with the matter, who declined to be identified discussing a private arrangement.

Though Verizon also competes for cable subscribers in the same area, the deal could pave the way for the telecommunications giant to offer more services through resellers and give consumers more options. A representative for Verizon declined to comment.

Companies like Verizon are also increasingly focused on adding broadband customers and less concerned with the pay-TV business. Internet is not only a higher-margin business, but it’s also a growing one. The number of people paying for cable and satellite, meanwhile, is flat.

That hasn’t deterred Layer3TV, a cable company selling a package of more than 260 channels starting at $85 a month. Customers in Washington who want TV and internet can get them together for $125 a month.

Founded in 2013 by a pair of veteran TV industry executives, the company has raised more than $70 million from North Bridge Capital and Evolution Media, an investment company founded by TPG Growth, Creative Artists Agency (CAA), and Participant Media. Those investors are betting Layer3TV can flout the conventional wisdom in the media business.

Skinny Bundles

Most pay-TV providers are trying to offer fewer channels at lower prices, concerned that viewers are opting to stream Netflix instead of TV because of a simpler user interface and lower price. Dish Network Corp., AT&T Inc., YouTube and Hulu are all selling so-called skinny bundles. 

Layer3TV isn’t interested in those customers. “We’re targeting households that wanna watch a lot of TV,” Binder said in an interview. “The top 40 percent of TV viewers aren’t going to skinny bundles.”

The problem with pay-TV isn’t the number of channels, Binder says, but the lack of innovation and personalization. Each user of Layer3TV’s cable service has a distinct profile, and is greeted by a welcome page with a variety of live and on-demand programming. The company relies on an engine to sift through a viewers’ behavior -- not so different from how Netflix decides what shows to deliver in a customers’ queue.

“We view it as a failure if you have to leave the home page for any live or DVR content,” Binder said.

Layer3TV expanded deliberately over the past few years, moving into D.C., Chicago, parts of Denver, Los Angeles and Dallas. It will continue to roll out in major markets over the next year and a half. The company declined to specify how many customers it has added, though said they are “beyond any of our expectations” in terms of uptake.

Binder identified a small market in Colorado as one of his company’s greatest successes. About 8 percent of the market has opted for Layer3TV in just six weeks thanks to a strong marketing campaign. Layer3TV hasn’t achieved similar penetration in other large markets.

To contact the reporter on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Bruce Rule, Paul Barbagallo