By Thomas Gryta And Joe Flint
Verizon's new TV offering is running into a bundle of
trouble.
On Tuesday, NBCUniversal and Fox joined ESPN in saying Verizon's
slimmer, cheaper packages of pay-television channels violated the
terms of their agreements, calling into question the future of an
early attempt to break up the usual massive bundle of channels into
more targeted tiers.
The new packages, which launched Sunday, let subscribers sign up
for a smaller package of channels from broadcasters like ABC and
Fox then add on packs of specialized programming like sports or
children's television.
Americans have been looking for opportunities to pick and choose
among channels. But the industry has moved slowly for fear of
upsetting long-lucrative arrangements, and the companies that make
popular shows have tried to protect their value with detailed
contracts specifying how they can be aired.
Walt Disney Co.'s ESPN objected last week to Verizon's new
offering, which it argues separates it from the core lineup. 21st
Century Fox unit Fox also objected, with a spokesman saying
Tuesday, "We reject Verizon's view that it can pursue the new
packaging scheme it announced yet still comply with our
agreements."
Comcast Corp. unit NBCUniversal also said the Verizon offering
falls outside the terms of their contract.
Fran Shammo, chief financial officer at Verizon Communications
Inc., said in an interview that the company believes it can offer
the programs under its existing contracts and isn't going to back
down.
"We have launched the product, we are not retracting it, and we
believe we are in our legal rights to launch it," he said.
Until mid-2013, 21st Century Fox was part of the same company as
News Corp, owner of The Wall Street Journal.
Verizon is the country's largest wireless carrier. But it also
serves about 5 million pay TV subscribers, ranking it among the top
providers in that industry, and is working on an "over the top"
service that will be delivered primarily to mobile devices.
The disputes put it at odds with major programmers at a time
when the pay television industry and content companies are
experimenting with a variety of new approaches as viewers migrate
to the Internet. Those moves are being prompted in part by the
migration of viewers to Internet-based alternatives like Netflix
and Hulu, as well as moves by channels like HBO to launch their own
streaming services.
In a sign of their rising clout, Verizon drops to eighth largest
pay TV provider from sixth if Netflix and Hulu are included,
according to the National Cable and Telecommunications Association,
an industry group.
Satellite broadcaster Dish Network Corp. has introduced a
streaming service called Sling TV that allows consumers to mix and
match tiers of channels on top of a $20 a month core package. Apple
Inc. is planning a TV service offering a "skinny" bundle of
channels in the fall, people familiar with the situation have
said.
Meanwhile, operators have been slimming down their offerings to
cater to cost-conscious customers. Comcast Corp., for instance,
offers a skinny bundle of TV channels with HBO and fast
broadband.
Dave Schmarder, a 65 year old retired electronics salesman in
Beaver Dams, N.Y., has programmed his cable box to skip over all
the channels he doesn't watch. The Time Warner Cable subscriber
said he only watches a few channels, including news and PBS. His
area doesn't get FiOS, but he said he would be interested in a
service that offers smaller bundles.
"I've been paying for ESPN for 30 years and never watch it," he
said. "It all adds up. They are forcing everyone to pay for
this."
FiOS's cheapest plan will cost $55 a month and will include two
channel packs. Each additional package, which can consist of about
10 to 17 channels, will cost $10 a month. Customers will be able to
switch to a different channel pack after having one for 30
days.
Verizon defended its moves Tuesday, saying "it is a product
consumers want, and it is all about consumer choice."
The company has cited a report from Nielsen that showed the
average number of channels Americans receive has increased by 46%
over the five years ending in 2013, to 189, while Americans still
only watch about 17.
Write to Thomas Gryta at thomas.gryta@wsj.com and Joe Flint at
joe.flint@wsj.com
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