Where Verizon's New Cable TV Options Fall Short

Source: Verizon. 

Last week, Verizon Communications (VZ -0.53%) announced new cable service options for its customers called FiOS Custom TV, which allows users to choose smaller TV packages -- for less money -- without having to sign up for a contact. 

The cheapest Custom TV tier, the Base package, starts at $55 per month and allows customers to watch 35 cable channels and pick two channel packs. There are seven channel packs, each catering to different viewing preferences like sports, children's programming, entertainment, news, lifestyle, and others. 

As with any other cable TV option, users can pair the package with Internet or phone for more money. Verizon calls them Double Play (cable + Internet) or Triple Play (cable + Internet + phone), and the first tier starts at $65 per month.

New and existing customers don't have to choose the Custom TV option, so it's hard to argue against Verizon offering more choices to its customers. That is of course, until you start comparing FiOS Custom TV to a la carte television services like DISH Network's (DISH) Sling TV. 

Where Verizon's FiOS Custom TV falls short
While it's great that Verizon is offering more choices to its customers, I think this is a rather small fix to a bigger problem for Verizon. 

Source: Sling TV.

Leichtman Research Group estimates that 125,000 U.S. subscribers ditched their cable subscriptions in 2014, up from 95,000 in 2013. As fellow Fool Dan Kline points out, last year's decline represents just 0.2% of all cable subscribers in the U.S.

But that modest decline was before DISH launched one of the most transformational cable options to date. Instead of being roped into buying dozens of channels, Sling users get 19 channels for just $20 per month (including ESPN, AMC, HGTV, CNN, TNT, and others) and can add additional packages for just $5 per month.

For many people with traditional cable packages, that $20 per month is a huge drop from their current cable bills. Not only that, but Sling's additional packages are inexpensive and allow users to build a cable subscription that fits their needs. And it's being offered at just the right time.

A recent report by the American Customer Satisfaction Index showed that cable providers were at the bottom of the list for customer satisfaction, and that the trend of over-the-top television services is opening up more options to customers. ACSI noted that customers question the value proposition of paying for "more than they need in terms of subscription TV" and that over-the-top services "threaten subscription TV providers."

As if competition from Sling weren't enough, just hours after Verizon announced Custom TV, ESPN put out a statement (first reported by Re/code) saying that Verizon's new service violates its content agreement with the cable provider.

ESPN isn't supposed to be bundled in sports packages, but that's what Custom TV is doing. Source: Verizon. 

ESPN, which has huge sway in the cable industry, is supposed to be bundled with the most popular television packages offered by cable companies and not sold as a separate sports package. Unfortunately for Verizon, that's exactly what it's trying to do with FiOS Custom TV, and both companies will have to come to an agreement before Verizon can even get the new service up and running. 

What all of this means for Verizon
In a press release, Verizon said, "We listened to what our customers want -- millennials, cord shavers, cord cutters -- and delivered Custom TV -- an industry first."

I get Verizon's strategy for Custom TV, I really do. The company gets to hold onto its traditional bundling system while offering more options to those who may be considering lower-priced or more custom alternatives. But I don't think the current Custom TV plans are enough of a stop-gap against those looking for true a la carte TV options. Many TV viewers who ditch cable do for two reasons: to save money and to have more viewing options. While Verizon's new service definitely adds more choices, the pricing is much higher than any over-the-top service. Traditional cable viewers may think $55 per month is a good deal, but people piecing together their television shows through Amazon Prime Instant Video, Netflix and Hulu (each for under $10 per month), certainly won't.   

Verizon's new service might convince traditional cable users to stay with Verizon rather than jumping to Sling TV. And that may be the company's main focus. Verizon likely knows it can make this small addition without sacrificing much subscription revenue, and without having to change the traditional cable model. But for cord cutters and cord shavers, Verizon Custom TV's $55 per month price tag likely won't be a cheap enough option to compete with true a la carte options.