ESPN, a top-rated sports TV channel and a division of The Walt Disney Co. DIS filed a case against Verizon Communications Inc. VZ in the New York State Supreme Court accusing the latter of breach of contract over certain licensing agreements.
Starting last week, Verizon has been offering a cost-effective customized TV service called “Custom TV” derived from its fiber-based FiOS TV network. For Custom TV, subscribers need to pay as low as $55 per month for 36 basic TV channels including CNN, HGTV, AMC and Food Network.
Subscribers may also choose two from the seven genre-specific channel packs — kids, pop culture, lifestyle, entertainment, news and information, sports and sports plus for an additional $10 a month. Interestingly, viewers will be at the liberty to add or delete additional channels every month. Notably, ESPN, ESPN2 and ESPNU channels are included in sports package while ESPNews is included in the sports plus package.
Disney has argued that in spite of it being mandatory for pay-TV operators to offer ESPN channels along with the main bundle of programs, Custom TV package allows subscribers to choose to drop the sports channel if desired. This is in violation to the licensing agreement signed between the two companies.
According to research firm SNL Kagan, ESPN receives $6.61 per subscriber per month from pay-TV providers. At present, this is highest fee any TV channel charges from distributors. Therefore, an option to avoid ESPN channels will be a major loss for Disney. Notably, Twenty-First Century Fox Inc. FOXA and NBC Universal, a division of Comcast Corp. CMCSA also criticised Verizon’s Custom TV package for the same region.
On the other hand, Verizon said customers have become every much price sensitive and they want to select TV channels according to their choice and the pay-TV industry must offer them these flexibilities in order to remain competitive.
Over the last five years, the pay-TV industry has been facing severe competitive threat from the low-cost online video streaming service providers. Several large cable and satellite TV operators have either launched Internet TV service are on the verge of launching it to maintain their foothold in the industry. Therefore, offering a customized TV package is the need of the day.
The outcome of the legal tussle between these two companies will be closely monitored by the pay-TV and media industries. Currently, both Verizon and The Walt Disney carry a Zacks Rank #2 (Buy).
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