Sports giant ESPN has sued Verizon over its plans for “skinny bundle” cable TV packages, which give consumers the option of choosing a smaller package of channels than the traditional basic cable subscription.
Verizon’s move comes as the traditional cable players are considering ways to fight “cord cutting” – people dropping traditional cable packages in favor of receiving their TV via the internet.
Disney, ESPN’s parent company, balked when Verizon announced the new bundle earlier this month. In a suit filed in New York, ESPN claims Verizon’s contract doesn’t give it the rights to split the sports broadcaster’s offerings up into a separate package. Comcast and Fox have hinted at legal action as well – all of them say their agreements with Verizon forbid the company from unilaterally deciding how their networks get distributed.
Given that distribution structure is carefully negotiated in cable deals, industry experts say Verizon faces an uphill battle to push through its new, skinny, packages.
“Our conversations right away with people were head-scratching,” said Michael Nathanson, an analyst with Wall Street firm MoffettNathanson. “We don’t know why they’re doing this now. If they’ve had the ability to do this their entire lives, why do it now? The only thing they could come up with is that maybe it’ll get Washington’s attention.”
Nathanson said he thought that might not go well – the skinny bundles, he said, aren’t actually that skinny given a starting cost of $55 a month. “You have Netflix at eight bucks,” said Nathanson. “You have to go a long way to beat eight bucks.”
“Consumers have spoken loud and clear that they want choice, and the industry should be focused on giving consumers what they want,” said Alberto Canal, a spokesman for Verizon. “We are well within our rights under our agreements to offer our customers these choices.” Verizon also announced on Monday afternoon that the company would include ESPN competitor CBS Sports in its sports channel pack.
Cable distributors have long complained about bundling – the practice of requiring companies like Verizon, Time Warner Cable and Charter to buy and distribute a suite of channels rather than the one or two networks that get the highest ratings. It is unpopular among cable companies, but it’s also the cornerstone of the television industry; Viacom, for example, can require distributors who want Comedy Central to buy smaller networks they’re trying to promote like VH1 Classics and MTV2.
But as the industry changes, so too do those agreements. An ESPN spokesperson said the company was embracing those changes, but that it wasn’t within Verizon’s rights to alter the deal unilaterally. “ESPN is at the forefront of embracing innovative ways to deliver high-quality content and value to consumers on multiple platforms,” said the spokesperson, “but that must be done in compliance with our agreements. We simply ask that Verizon abide by the terms of our contracts.”
Nathanson agreed. “[Disney’s] ABC.com strategy and WatchESPN has been very much to [Verizon’s] advantage,” he said. “I think they picked the wrong guys to fight.”
