Verizon isn't one of the biggest players in cable and satellite TV, but it picked what may be the most important fight in the industry this decade. Responding to consumers' demand for less expensive programming bundles, Verizon introduced a slimmed-down offering without the popular but costly ESPN sports network, which was relegated to an optional sports package. The move drew a lawsuit from ESPN, which alleged that Verizon is violating its contract with the network.
In one sense, the battle is a simple dispute over the provisions of a contract. In another, however, it's part of a bigger struggle to change an aging business model in the face of the public's growing desire and ability to pay only for the entertainment it wants.
The new "Custom TV" offering by Verizon, whose FiOS TV service has 5.7 million subscribers isn't exactly cheap at $55 a month. But it does give consumers the unusual ability to edit the once-inviolable basic programming tier, cutting its cost by excluding groups of networks that they don't watch (for example, sports channels or kids programming). NBCUniversal and 21st Century Fox complained that this violated their contracts; ESPN not only complained, it sued.
The sad reality for Verizon and other pay-TV companies is that the handful of media conglomerates that own the vast majority of popular networks have enormous leverage when it comes to negotiating distribution deals. Those conglomerates are the driving force behind overstuffed and expensive programming tiers. Cable and satellite companies were happy to go along while their customer bases were growing, but the numbers are slowly heading in the opposite direction now as more consumers balk at paying cable bills that average more than $92 per month.
Comcast sought more leverage over the conglomerates by buying Time Warner Cable, only to have the deal collapse in the face of regulators' opposition. Now Verizon is trying a new tack. "Custom TV" may not survive, but smaller bundles are already popping up online from the likes of Sling TV, Sony and, soon, Apple. Cable and satellite seem sure to follow suit, although they're more likely to do it by pushing out networks less popular and powerful than ESPN. Pay-TV operators can't keep charging more for bundles filled with channels people don't watch, not when a growing number of creators and networks are making their work available online to those who'll accept fewer channels for a much lower price.