Verizon (NYSE:VZ) has become the latest pay television provider to inch closer to an a la carte pricing model but, unfortunately, its new offer sounds a lot better than it actually is.
The company is not yet offering the ability to buy channels on an individual basis, but it is offering a new set of packages, which gives consumers more choice. It's a similar model to the one DISH Network (NASDAQ: DISH) uses for its pure digital Sling TV service. Customers pay one price for a base offering of channels and can then add groups of channels for an additional cost.
It's not a true a la carte model. Instead, it's a variation on the current system which loosens things up for consumers. Whether that actually saves them any money remains to be seen.
What Verizon is doing
Through its FIOS service, Verizon has started offering what The Wall Street Journal describes as, "a slim package of TV channels that includes broadcasters such as ABC and Fox, as well as CNN, AMC, Food Network and others."
Customers must buy the base package which includes local broadcast networks as well as over 35 channels. They can then select "two of the seven available genre-specific Channel Packs to create a personalized plan," ARS Technica reported. Verizon explained the offering in an email printed by ARS.
Custom TV allows both new and existing customers to customize their plan by adding a Channel Pack at any time for $10 (per pack). Customers can change their Channel Packs after 30 days or add a Channel Pack at any time. Each Channel Pack includes an average of 10-17 channels. No contract required.
Sports fans get two options: the Sports Channel Pack, which includes ESPN, FOX Sports and more; and the Sports Plus Channel Pack, which includes Regional Sports Networks and specialty sports programming like NFL Network, MLB Network, NBA TV, NHL Network and Golf Channel. Avid sports fans who want the complete TV sports experience will want the Sports Plus Channel Pack.
The cheapest Fios plan costs $55 a month and includes two channel packs.
"It's a simple way for customers to choose the types of channels they want without paying for those they don't," Verizon said in a description of the new pricing system that was emailed to reporters.
A bit of a problem
One of the most notable things about the Verizon offer is the Custom TV base package does not include ESPN. That's great news in theory for non-sports fan as the various ESPN channels cost pay TV providers more than any other channels and not having to buy them should result in a lower bill (though at $55 for the cheapest plan it's hard to see how Verizon is passing on that savings).
Whether it saves consumers money or not, Disney (NYSE: DIS), which owns ESPN, has issued a statement, which was printed by Re/Code saying that its contract with Verizon does not allow the company to break off the sports network into an optional package:
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.
If the two companies can't reach an agreement -- and it does not benefit Disney to allow Verizon to relegate its signature channel to an add-on tier -- than it could derail Custom TV before it gets off the ground.
It's all about price
What Verizon is doing seems to be about customer choice and that's certainly what the company would want consumers to believe. That, however, does not really seem to be the case as at a base price of $55 people will be paying a little less to get a lot less.
In 2013 the average expanded monthly basic cable bill paid by Americans was $64.41, according to the Federal Communications Commission. That package came with 160 channels, costing an average of $0.48 for cable customers. Satellite customers got even more stations as part of the expanded basic package with DISH charging $59.99 for 150 channels while DirecTV (NASDAQ: DTV) offered 211 for $63.99.
Verizon is offering between 55-69 channels for $55. That's around a dollar per channel.
Custom TV does give people more choice, but it does not offer much in the way of value. What it does mostly is allow Verizon to save money by not having to pay carriage fees for an awful lot of channels.
On the surface getting to pick your packages sounds like a good deal, but upon close examination, it's really only a good deal for Verizon.
Daniel Kline owns shares of Apple. He likes getting lots of channels he never watches. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Netflix, Verizon Communications, and Walt Disney. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.