Reuters is reporting that Verizon plans to challenge Netflix in the streaming video business with its own service in 2012, but sources say it will have a limited menu of shows and movies and will only be available for customers in markets without FiOS internet and TV service. Sources say that Verizon has been exploring the possibility with programmers for the past two years, and that it is in confidential discussions with content partners — they claim programmers have expressed concern over fees and the possibility of damaging their lucrative relationships with cable companies. One source told Reuters that the service's focus would be on packages of movies similar to Starz Play and Epix, or that it could include children's programming from Disney or Viacom.

Starz announced back in September that it would not be renewing its license with Netflix in 2012, and that it's working on its own streaming service. It's also supposedly in discussions with Amazon and Blockbuster, so a partnership with Verizon wouldn't be much of a stretch. Other cable companies have been testing the waters with various forms of streaming, but so far none of the major cable providers has really made a big push to the web. That said, Verizon is experimenting with different delivery options and plans to add 26 streaming FiOS channels to the Xbox 360 sometime this month