ESPN sued Verizon today for breach of contract over its stated plans to offer a new kind of cable package, the New York Times reports.
Cable television packages are typically bundled, meaning subscribers don’t get to pick and choose which channels they receive (and therefore pay for). That’s why you get 150 channels even though you have never heard of 100 of them. Because of its immense popularity, ESPN is included in the basic cable package by basically every cable provider, and is paid $6.04 per month by those providers for each subscriber. This is the main reason why ESPN is worth tens of billions of dollars.
Almost two weeks ago Verizon announced that they were changing this basic calculus of how cable packages work, introducing FiOS Custom TV. For $65 a month customers will receive 36 basic channels, and get to choose from two of seven “channel packs”: Lifestyle, Entertainment, News & Info, Pop Culture, Kids, Sports, and Sports Plus. (Additional channel packs can be bought for $10 a piece.) If a customer has limited television watching interests, they will probably pay less for cable than they do now.
But according to ESPN, their agreement with Verizon doesn’t allow for their channel to be distributed in a sports package. Via re/code:
“Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements. Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
The economics of slimmed down cable packages are bad for ESPN, and most other cable networks. Right now anybody getting a basic cable package, even if they’ve never watched ESPN in their life, has to pay (through their cable bill) ESPN that $6.04 per month. And even if a la carte pricing—where you pay individually for each channel, instead of buying packages—were to gain steam, ESPN would probably fare just fine too. According to one analyst, ESPN could charge $36.30 per month, completely offsetting a reduced number of subscribers.
With FiOS Custom TV ESPN is still “just” paid $6.04 per month by anybody that selects the Sports channel pack, but isn’t paid by the non-sports fans who opt for other channel packs. Simple math tells you that the same channel price with fewer subscribers means a net loss of revenue for the Worldwide Leader.
Without a copy of Verizon’s contract with ESPN, it is impossible to judge the merit of the case, or whether ESPN’s lawsuit is likely to be successful. What is clear is that 500-channel television packages are on their way out, and this lawsuit is likely the first in many between cable providers and cable networks as they painfully adjust to this new reality.
You can read the full two-page summons, via Ars Technica, below.