In what could be seen as uncharacteristically customer-focused maneuver, Verizon began offering “Custom TV” plans for their FiOS cable packages starting at $55 per month beginning last week. These plans include a core bundle of stations and then offer additional customizable tiers of channels based on customer preferences. The tiers include specialties like sports, kids, news and information, or lifestyle among others. Two such bundles are included in the basic agreement and then additional tiers are offered for an additional $10 per month. This appears to be a move to separate themselves from other providers in regards to consumer choice and get a leg-up on competitors in an industry known for its abysmal customer service. Many experts also see it as a reaction to the plethora of viewing options from both satellite providers like Dish and DirecTV, as well as the expansive growth of streaming sites like NetFlix and Hulu.
This customization, however, comes at the expense of many cable networks, which are generally compensated by the number of viewers of the station. This has brought angry reactions from many of television’s largest content providers. ESPN, a division of The Walt Disney Company, filed a lawsuit Monday, April 27th in New York’s Supreme Court, claiming that Verizon is violating terms of its distribution agreement by offering these packages. In addition to ESPN, both Comcast and 21st Century Fox, who own several channels included in most traditional cable packages, have also expressed their frustration with the change and are also contemplating legal action. ESPN is basing their suit on Breach of Contract, claiming that the “contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.” Verizon representatives, however, argue that it is within their contractual right to offer these tiers, with a company spokesperson adding, “Consumers have spoken loud and clear that they want choice, and the industry should be focused on giving consumers what they want.”
The bigger issue, ESPN argues, is whether or not Verizon can make this decision unilaterally. In a statement, the company wrote, “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.” It is unclear at the moment the specific language in the terms of their agreement; a matter left for the courts, but ESPN is likely using the lawsuit as terms for renegotiating their deal with Verizon. Both sides have added a back-story that leads one to believe this suit may more a matter of price-discovery than it is an actual attempt to seek damages. Disney and ESPN recently signed a deal with Sling TV to provide content, especially sports content, which is highly-valued in streaming circles. For its part, Verizon added CBS Sports TV to its sports tier as a possible hedge against ESPN.
The question remains whether or not Verizon is simply taking a unique and innovative approach to their service options, or if it marks the first official acknowledgement of the deconstruction of the cable industry as a whole. While the Custom TV offer may separate Verizon from its competitors in the short term, other companies will likely be forced to eventually follow suit. The ESPN lawsuit among other potential legal action should help to determine whether or not streamlined packages will be profitable in the future. It may, at the least, keep the companies viable over the next few years, but it may not be enough to ultimately keep cable as the dominant viewing platform. With so many alternatives already in existence, plus potentially many additional options in the near future, competition in this industry may become a race to the bottom and a shrinking oligarchy of cable providers.
Ars Technica – Jon Brodkin
CNET – Roger Cheng
Fortune – Tom Huddleston Jr.
Wall Street Journal – Joe Flint