ESPN Sues Verizon Over New FiOS TV Packages

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 [e-mail]

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