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ESPN sues Verizon over its plan to create slim bundles of cable channels

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The battle over the unbundling of pay TV is heating up

Verizon wants to start offering its customers slim bundles of cable channels and the option to swap packages of channels in and out as they choose. The company says it's about giving consumers the choice they crave, and it's clear Verizon feels it needs this kind of customization to compete with the broadening array of streaming video options. But ESPN publicly objected to the plan, and today the sports media giant is reportedly suing Verizon for breach of contract.

"Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package," the company said. Verizon wanted to offer those channels as part of a $10 "sports pack" that consumers could bolt onto their base subscription. "ESPN 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 said in a statement.

ESPN is far and away the most expensive channel when calculating what subscribers pay per channel, because its lock on various sporting content puts it in very high demand. Disney has no incentive to unbundle it from their other channels. To get ESPN you also need to subsidize ABC, A&E, and History.

Verizon is in the enviable position of having ESPN take the blame from angry consumers if things don't work out. It's clearly playing up that angle with its public statements. "I think the right way to answer this without getting too public about our contractual situations –— look, this is a product that the consumer wants," Verizon CFO Francis Shammo said on the company’s earnings call. "It’s all about consumer choice. I mean, if you look at the TV bundles today, most people only on average watch 17 channels. So this a way to give consumers what they want on a choice basis."

This current scrap is part of a much bigger change happening in the pay-TV industry. As the subscriber base shrinks and viewing shifts to streaming media on demand, ratings are sinking even at top channels like ESPN. Just as HBO finally got up the nerve to cut the cord with HBO Now, Verizon is trying to inch its way toward a la carte offerings that can more easily compete with Netflix, Hulu, Amazon, and the rest of TV's new breed.