Well, that didn’t take long. Two weeks ago, word spread out that Verizon was ready to push new Custom TV FioS bundles that would allow customers to pick and choose what channels they wanted to pay for on a monthly basis. Customers are able to choose a basic package of channels, and then select from at least two of seven additional themed packages (i.e. Culture, Entertainment, Sports, etc.). So if you have no interest in sports at all, you wouldn’t have to purchase the Sports package.
Needless to say, ESPN wasn’t too thrilled about this arrangement and quickly made its objections known. ESPN wants its cash no matter what, with The Wall Street Journal writing a week ago, “Verizon does not have the right to place ESPN or ESPN 2 into separate sports tiers that aren’t part of the core package." Undeterred by ESPN’s opposition, Verizon officially launched Custom TV this past Tuesday.
ESPN took a few days to get its legal ducks in a row, but now it is ready to file a lawsuit in the New York Supreme Court against Verizon, citing breach of contract according to CNBC. "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,” said ESPN in a statement to CNBC. “We simply ask that Verizon abide by the terms of our contracts.”
Verizon, however, obviously doesn’t see eye-to-eye with ESPN on this matter. “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. It's all about consumer choice,” said Verizon CFO Fran Shammo while defending the Custom TV package during last week’s Q1 earnings call [PDF]. “If you look at the TV bundles today, most people only on average watch 17 channels, so this is a way to give consumers what they want on a choice basis. And we believe that we are allowed to offer these packages under our existing contracts, so we will leave it at that.”
It’s understandable why ESPN is fighting back. ESPN is far and away that most expensive channel included in the average cable TV package — it’s not even close. The median cost per channel that a cable provider pays to a network is $0.14 per customer, while FOX Sports 1 costs on average $0.68. Third place NFL Network rings in at $1.22, while second place TNT costs $1.48. ESPN, however, costs an astonishing $6.04 according to SNL Kagan.
If customers forgo the $10 Sports package that includes ESPN, the network stands to a lose a huge chunk of revenue.