ESPN Sues Verizon For Trying To Give Consumers What They Want

from the sisyphus dept

Tue, Apr 28th 2015 6:16am — Karl Bode

As we noted last week, Verizon is responding to more flexible Internet TV bundles by offering a few new options of their own. Verizon's new FiOS Custom TV broadband bundles include a core lineup of channels with the option of adding on an assortment of $10 channel add on packs. Once you get done adding the usual DVR rental costs, contracts and fees, the effort is much less revolutionary than it's being portrayed in the media. Still, Verizon's move is notable in that it's busting the biggest contributor to soaring cable costs (sports) and busting it out of the core channel lineup. No longer forcing people who don't watch sports to pay for it? Outrageous.

Comcast/NBC, Fox and Disney/ESPN have been throwing a hissy fit in the week since the new options were announced, claiming that the new offerings violate existing contracts. It's not too surprising; breaking a channel like ESPN out of the core channel bundle immediately reduces ad impressions and overall marketing footprint, even if it's unfair for consumers to pay for incredibly-expensive content they have absolutely no interest in.

ESPN has now filed suit, issuing a summons (pdf) to Verizon (the actual complaint is still being redacted and hasn't been made public yet), stating that Verizon is in breach of contract. ESPN is requesting an immediate injunction and a financial penalty of $500,000. In a statement, ESPN argues that the channel really loves "innovation," except when it doesn't:

"A statement from the network explains that “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. We simply ask that Verizon abide by the terms of our contracts."

Would that be the same contract that ESPN believes prevents innovative ways of delivering high-quality content? As 2015 becomes the year that Internet video finally starts to see some interesting but imperfect new options, ESPN's swimming upstream if it hopes to sue its way toward keeping cable permanently stuck in 2003. Consumers are increasingly making it clear that soaring programming rates simple aren't tenable, and they intend to cut the cord or flee to piracy if the cable industry wants to continue stumbling drunkenly down the current path.

If ESPN wants to get out ahead of it all, the company might want to focus on actually being at the forefront of developing "innovative ways to deliver high-quality content and value to consumers," in lieu of suing the limited number of cable companies actually trying to do this. Instead, like so many legacy giants, it will sue to try to stop the disruption, push even larger rate hikes on all of the remaining sports customers in the belief that the current cable TV cash cow will live forever, then act disoriented and stupid in a few years when the company finds itself behind the sports programming innovation eight ball.

Verizon ESPN (PDF)Verizon ESPN (Text)

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Filed Under: bundles, contracts, fios custom tv, over the top, video
Companies: disney, espn, verizon

28 Comments

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HMTKSteve, 28 Apr 2015 @ 6:21am

base package
Is there a clear definition of what qualifies as a base package? I understand ESPNs claim about being put into a sport package but is there anything stopping Verizon from creating a bunch of "base" packages with and without ESPN?
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Jim, 28 Apr 2015 @ 6:44am

Re: base package
You would have to look at the contract between Verizon and ESPN to determine if Verizon can sell a "base package" that does not include ESPN.
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Mason Wheeler (profile), 28 Apr 2015 @ 6:47am

It's not too surprising; breaking a channel like ESPN out of the core channel bundle immediately reduces ad impressions and overall marketing footprint, even if it's unfair for consumers to pay for incredibly-expensive content they have absolutely no interest in.

Wait, what? How do you lose ad impressions from customers who weren't watching your channel in the first place, simply because it's not not even an option for them to watch your channel that they weren't watching anyway? 0 - 100% = you haven't lost anything.
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DannyB (profile), 28 Apr 2015 @ 7:01am

Dear ESPN
There is a reason I dislike, avoid and have no interest in organized sports. That reason is the same as what you do with sports and cable packages. Cram sports down my throat by force.

Can you conceive of the idea that some people really have no interest in sports?

What do you think the world would be like if you could be forced to participate in every topic, as well as pay for it? Want to learn to code an mp3 decoder using discrete cosine transforms? Want to learn to read Hebrew?

Sincerely

(Ambient noise in this YouTube video is used without license or permission from the following content providers:
Union Pacific Railroad
Lawrence KS Police Department
Neighborhood Children
Birds in nearby trees)
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Mason Wheeler (profile), 28 Apr 2015 @ 7:11am

Re: Dear ESPN
There is a reason I dislike, avoid and have no interest in organized sports, and that's the strong culture of thuggery that goes with them. Disproportionately large percentages of athletes in the professional sports system have been accused of serious, violent felonies--assault, sexual violence, domestic abuse, drug dealing, DUI, stuff like that--and in almost every case it gets covered up and papered over by the League's high-powered lawyers and well-trained handlers.

This pattern of evading responsibility and enabling violence goes all the way back through college sports and, in many cases, even to the high school level, and no one does anything about it. So I'm going to do the only thing I can, and not feed a cent of my money into that corrupt system.
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Anonymous Coward, 28 Apr 2015 @ 7:18am

Your honor, the defendant has violated my right to guaranteed profits.
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Anonymous Coward, 28 Apr 2015 @ 7:21am

Re:
> How do you lose ad impressions from customers who weren't watching your channel in the first place

Don't assume that just because a customer doesn't want to pay for ESPN, they don't want to watch it.

If the contract says Verizon can't do what they want to do, then ESPN should win.
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Anonymous Coward, 28 Apr 2015 @ 7:26am

Re: Dear ESPN
You should be writing to Verizon, not ESPN. If Verizon agreed to pay what is essentially a royalty to ESPN for every "premium" subscriber, then ESPN has every right to be pissed off.
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Anonymous Coward, 28 Apr 2015 @ 7:29am

You should ignore any company statement that claims they are innovative. Every company claims they are innovative (and care about customers, and have competitive prices).
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Anonymous Coward, 28 Apr 2015 @ 7:29am

Re:
AKA

Felony interference with a business model.
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Anonymous Coward, 28 Apr 2015 @ 7:45am

Usually they don't bother to define a base or basic package, in the contracts I've seen (read that as one), they usually define a high percentage. For example, they might say you need to include ESPN in packages delivered to 80% or 85% of your subscribers. Possibly forcing you to curtail offering certain non-espn packages if too many people are taking them.
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Anonymous Coward, 28 Apr 2015 @ 8:11am

Re: Re: Dear ESPN
So should Verizon shareholders.
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beech, 28 Apr 2015 @ 8:12am

Response to: Anonymous Coward on Apr 28th, 2015 @ 7:45am
That could lead to some interesting possibilities. Verizon could offer espn-free packages "while supplies last" on a first come basis until they hit that cap.

Of course,maybe contract negotiation time is coming up and Verizon is just making some noise to strengthen their bargaining position
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Anonymous Coward, 28 Apr 2015 @ 8:13am

I admire Verizon for what they are trying to do. They are at least attempting something 'new'. By no means is it anything close to what consumers want. We want choice, our choice, not bundled packages that are created by back room deals. What I want from Verizon is fiber internet, HBO, TNT, AMC, Showtime, Starzs and Cinemax. What I get is a triple play bundle plus 300+ channels that I never watch. Given the choice to save 6 bucks and not have ESPN, I would jump on that in a heartbeat.

The reason we won't see ala carte pricing on channels.... Look up who owns the content creation companies. Spoiler alert -----> for the most part it is the distribution companies. I don't include ESPN in the category of a content creator, just my opinion that filming a live event is not by the same definition as someone creating a show/movie. If a sporting event is content, then the creators are the teams/coaches, not the guy filming it.
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tqk (profile), 28 Apr 2015 @ 8:17am

Re: Re:
Don't assume that just because a customer doesn't want to pay for ESPN, they don't want to watch it.

Don't assume that just because a customer doesn't watch ESPN, that the latter won't sell those non-existent ad impressions anyway.

I agree Verizon should lose here. They're welcome to buy their way out of the contract, or not renew at the end of it, much like those infamous Early Termination Fees ISPs charge their own customers. How they thought they could get away with this, I don't know. However, maybe this is just using Microsoft's old tactic of stealing somebody's tech, then paying up when they're busted for infringing.
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Anonymous Coward, 28 Apr 2015 @ 8:18am

Re: Response to: Anonymous Coward on Apr 28th, 2015 @ 7:45am
> Verizon could offer espn-free packages "while supplies last" on a first come basis until they hit that cap.

Sounds like something they could charge a hefty premium for.
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Anonymous Anonymous Coward, 28 Apr 2015 @ 8:26am

Re: Re: Response to: Anonymous Coward on Apr 28th, 2015 @ 7:45am
You mean as in charge extra for not consuming something? I know it happens, but that doesn't make it smell any better.
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ECA (profile), 28 Apr 2015 @ 8:27am

Lets ask
Ok..
The prices that CABLE pays per channel has been posted. its on the net and soforth.

If you dump all the channels you DONT watch and those you seldom watch...
The odds are you only have 15-20 channels.
And if you paid $1 per channel, which is more then cable Pays for those channels..Would you be happy, and cable still making a profit?

And WHy are there contracts that REQUIRE, me to have channels I dont want to watch?
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John Fenderson (profile), 28 Apr 2015 @ 8:30am

Contract dispute
This looks to be a pure contract dispute. Since I haven't read the contract at issue, I can't opine about who I think should be "the winnner", but for our purposes the dispute itself doesn't seem very important.

The real issue is that cable operators are signing contracts that end up charging many customers a lot for things that they have no interest in. Perhaps Verizon will keep this in mind when it's time to renegotiate the contract.
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Silent Bob, 28 Apr 2015 @ 8:43am

I for one would buy the all sports all the time package
I suspect Disney/ESPN would do just fine in an ala carte environment. Unfortunately, if I want to watch them now, I have to first sign up for an annoying base package containing the Women's Midlife Crisis channel, the Tween Coming of Age channel, the Weather Where I Don't Live channel, and the World War II UFO Bible channel (formerly the History channel). I say unbundle everything and let the market decide. As long as bros exist, cable sports will have an audience.
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David (profile), 28 Apr 2015 @ 8:57am

Re:
Your assumption is invalid. Many of those customers do watch ESPN. I occasionally watch ESPN but don't, and won't, pay for a sports package. I'm not unique in this.

The key word is "impression". The fact that it will be in fewer households implies that fewer people will see the ads and that reduces the amount that ESPN can charge for those ads.
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tqk (profile), 28 Apr 2015 @ 10:33am

Re: Re:
Many of those customers do watch ESPN.

Certainly, they do. My point is that whether they watch ESPN or not is irrelevant to ESPN. They still get to charge for those ad impressions whether real or mythical. If they're split out of the base package, they only get to charge for those who do watch (buy) ESPN.
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ECA (profile), 28 Apr 2015 @ 10:56am

INSERT...
For those that dont get the idea..
The popularity of ESPN is 30-40%..in most areas..
but CABLE places this in EVERY PACKAGE...
So 60% get charged for it, and probably DONT watch it..
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Josh in CharlotteNC (profile), 28 Apr 2015 @ 11:21am

Re: Re:
I occasionally watch ESPN but don't, and won't, pay for a sports package. I'm not unique in this.

Unless you're pirating cable, you *are* already paying and *will* pay for the sports package (ESPN) that is included in your basic rates.

That last time I looked up how the fees of a basic cable package got divided it was something like:

ABC: $0.20
NBC: $0.20
Discovery: $0.35
...long list of channels all under $1.00 until the very last one...
ESPN: $6.75

ESPN really doesn't want it obvious to most customers how much more their content costs compared to other things. So of course they'll fight Verizon on this.

Is Verizon likely to lose from a legal standpoint if the contract they signed with ESPN says they've gotta include it? Probably. However, ESPN will also lose, because the fat fees it gets to rake in will prevent it wanting to adapt to a very much changing market. Customers lose for paying for something they don't want, and many of which don't even realize what they're paying for. The only winners will be the lawyers on both sides.
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Jim, 28 Apr 2015 @ 11:45am

ESPN is panicking because...
ESPN, over the past few years, have signed rights contracts with several leagues, at huge premiums over previous contracts, with such organizations as the NBA, the NFL, the SEC, the University of Texas, as so on, to the tune of tens of billions of dollars, in total. There have been real bidding wars among the sports bundlers (or content companies, as referred to on this blog) for these rights. Worse yet, most of these contracts extend well into the 2020's.

The one assumption that all of the sports bundlers have made over the last 3-4 years, in signing these deals, is that they would be carried in 70-80% of American homes, the old regime, so to speak, making just about everyone in the country pay a monthly sports tax, for programming that most don't care about, and spreading out the cost among hundreds of millions of customers.

The cord-cutting revolution, as well covered on this blog, has frankly caught them by surprise, and they are at Defcon 5 about these long-term contracts, and the fact that ESPN, Fox, NBC/Comcast, etc., just might not be able to pay the bills, in just a couple of years. This is also why pro sports leagues have been very proactive recently about getting into the streaming game, which may be their main source of revenue, sooner rather than later. This is a huge story, indeed.
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Anonymous Coward, 28 Apr 2015 @ 12:01pm

Re: Re: Re: Dear ESPN
I agree. I think Verizon is going to lose here and it's going to be expensive.
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ECA (profile), 28 Apr 2015 @ 3:10pm

Re: Re: Re:
And i dont believe in restricted contracts..

It would be GREAT if they all covered it, if they wished.
But I HATE paying for something I dont watch...its like getting charged for Stadium seats, and not even asking for them..

Dont that sound like fraud? robbery?
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Ninja (profile), 29 Apr 2015 @ 4:49am

In the same spirit of the Obama administration I'd love to know what "innovative" mean in that parallel English dictionary. I'll go with "sushi and sashimi with ramen" this time just to be consistent (though truth be said the dictionary is secret and consistency may not be checked).
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