Verizon Communications appears ready to rumble over the bundle.
After launching what it touted as the next evolution in consumer choice — a “skinny TV” bundle it dubbed “Custom TV” — Verizon has steadfastly resisted complaints from programmers who have insisted the service has no right to unilaterally modify programming agreements.
A deeper motive may lie behind Verizon’s actions, though: openly challenging programmers’ long-held practice of bundling channels in carriage deals to win public support.
Verizon introduced Custom TV with much fanfare, claiming the package would open up a new era of consumer choice. For $54.99, customers would get a base package of 35 channels — including the four broadcast channels and cable networks AMC, CNN, HGTV and Food Network — plus the ability to pick two of seven genre packages, including Lifestyle, Entertainment, News & Info, Pop Culture, Kids, Sports and Sports Plus. Customers could buy additional packages for $10 per month.
But almost as soon as the new package was announced, programmers began to complain, with ESPN chiming in first.
“Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements,” the sports giant said in a statement. “Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
Other networks followed with basically the same argument — NBCUniversal and 21st Century Fox also said the bundles did not jibe with their existing agreements. Other programmers are expected to join the litany.
Discovery Communications and Turner Broadcasting System — whose networks are interspersed between Custom TV’s Lifestyle, News & Info, Kids and Entertainment packs — also do not allow distributors to place their networks on a tier, according to some cable operators that asked not to be named.
Turner declined to comment, and Discovery did not return a request for comment.
Verizon, for its part, was defiant in its resistance. Chief financial officer Fran Shammo told analysts recently that Custom TV is a product consumers want.
“We believe that we are allowed to offer these packages under our existing contracts, so we will leave it at that,” Shammo said.
Later, Shammo got more specific, telling The Wall Street Journal that despite the objections, Verizon was not going to pull the package.
“We have launched the product, we are not retracting it, and we believe we are in our legal rights to launch it,” he told the Journal.
But Baker Botts partner Lee Charles, who has represented distributors and programmers in a number of carriage deals, said most programming agreements are pretty clear in prohibiting MVPDs from putting major networks on anything but the most popular level of service. According to some distributors who asked not to be named, that usually means a service level that reaches between 85% and 90% of the total customer base.
It’s unlikely Verizon misinterpreted its contracts that badly, Charles added, making the idea that it has some other agenda more possible.
“They didn’t miss anything; they’re very smart people over there,” Charles said. “Believe, me this is something that every cable operator is very familiar with. Verizon didn’t wake up one day and say, ‘Let’s try this.’ It sounds like they’re spoiling for a fight on this.”
He added that the outcome also could spell the fate of so-called skinny TV packages.
“At some point, when these contracts are up for renewal, there is going to be a stare-down between the programmers and the distributors about these types of provisions,” Charles said. “I do think that issue is going to make or break whether skinny packages are going to be something we can expect going forward.”
AN ONGOING FIGHT
Charles said luring ESPN into a court battle could shine a further light on the bundling practice, but Verizon wouldn’t be the first. In 2013, Cablevision Systems sued Viacom in federal court over the practice of bundling networks in carriage deals, a habit that drives up the cost of programming. That case is still in the discovery stage.
Every major network group bundles channels — basically selling its popular networks in a package with its less-watched channels. Networks have argued that distributors can buy their channels separately, but the price is usually so high as to discourage it.
The timing maybe right to force ESPN into a corner, Charles said. The proliferation of over-the-top services has cast a light on the high cost of programming.
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