By Joe Flint
ESPN filed a lawsuit against Verizon Communications Inc.
alleging the telecom company's new FiOS TV packages breach a
contract covering how the sports TV network is to be
distributed.
Verizon began offering "Custom TV" plans last week starting at
$55 a month that allow viewers to buy a basic set of channels,
including broadcasters and some cable networks, and layer on tiers
of channels in genres like sports, kids and lifestyle.
The packages are aimed at consumers seeking more flexibility in
how they buy TV, but several media giants have been pushing back
hard, arguing the offering violates their distribution deals with
Verizon.
The issue of how channels are sold to subscribers has taken on
greater urgency in the media industry as more consumers seek to
lower monthly TV bills and are embracing streaming services such as
Netflix and Hulu. Verizon serves about 5.7 million TV households,
ranking it sixth among U.S. pay-TV providers.
Walt Disney Co.'s ESPN filed its suit Monday in New York Supreme
Court. In a statement, the sports network said it is "at the
forefront of embracing innovative ways to deliver high-quality
content and value to consumers on multiple platforms, but that must
be done in compliance with our agreements. We simply ask that
Verizon abide by the terms of our contracts."
ESPN argues that while distributors have the right to create
smaller packages for customers that exclude its networks,
distributors can't then put ESPN channels into a separate add-on
sports bundle.
Verizon says it is trying to give consumers more choice and is
within its rights. "Looks like they are suing consumers to force
them into a one-size-fits-all bundle," a Verizon spokesman said.
Verizon added that CBS Corp. is allowing its sports channel to be
placed in a separate tier of similar networks.
The spokesman declined to say how many people had subscribed to
the new service since it was launched last week.
Other content companies, including 21st Century Fox Inc. and
Comcast Corp.'s NBCUniversal unit, have also said Verizon's plans
violate current programming agreements. Both declined to comment on
whether they would pursue legal action against Verizon. (21st
Century Fox and News Corp, owner of The Wall Street Journal, were
part of the same company until 2013.)
"Verizon's current skirmish speaks to the trouble distributors
will have in creating a slimmer package that is attractive, both
from an economic and content perspective," according to a report
Monday from the research firm MoffettNathanson.
Besides the lawsuit from ESPN, Verizon's new packages could also
hurt its negotiations with programmers for content for an online
video service it is planning to launch. "We are not sure what is
gained from going to war with their largest content providers,"
MoffettNathanson said in the report.
Verizon's new packages don't go as far as making TV channels
subscriptions a la carte. But the company's push--along with the
growth of streaming services-- has led to speculation that the
traditional big bundle of channels, which is the economic backbone
of the pay TV industry, is on the verge of extinction.
However, that may be an exaggeration, at least according to one
top industry executive.
"I don't think the cable bundle is going to crash in the next
six to 12 months," said Liberty Media Corp. Chief Executive Greg
Maffei during a panel discussion at the Milken Conference in Los
Angeles on Monday.
Ryan Knutson contributed to this article.
Write to Joe Flint at joe.flint@wsj.com
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