The media, and perhaps some of the public, got very excited when Verizon (NYSE:VZ) announced a new pricing plan which, while not quite a la carte, does break up the traditional cable bundle. The company might have acted too fast, though, and some partners, including Walt Disney's (NYSE:DIS) ESPN channel, objected to the move almost immediately.
What: Verizon FiOS Custom TV allows customers to purchase a base package of about 35 channels and then add two of seven available genre-specific Channel Packs to create a personalized plan. The lowest-priced offer costs $55 per month and does not require customers to pick a package that includes ESPN. Customers can add additional channel packs for $10 each per month.
So What: The sports network first cried foul and has now filed a lawsuit claiming FiOS Custom TV violates its carriage agreement with Verizon, Deadline reported.
"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," the network said in a statement. "We simply ask that Verizon abide by the terms of our contracts."
ESPN filed a public summons with the New York State Supreme Court giving Verizon 20 days to respond, according to Deadline.
Now what: If Verizon doesn't respond then ESPN plans to ask for at least $500,000 in damages, Deadline reported. The company has sent a detailed, full lawsuit to Verizon. The two parties' contract is confidential.
The Washington Post reported that an ESPN spokesperson told it "that the disagreement was not primarily about money, but about sending a message that cable partners can't 'unilaterally change deals' without permission." The paper noted that the spokesperson also pointed out that “ESPN and several programmers negotiated for more than one year with Dish Network” on its Sling TV service, which is a similar skinny cable package with add-on options.
Whether the lawsuit is settled or ultimately heads to court, how this gets resolved has huge ramifications for not just Disney but for all cable channel owners that receive carriage payments from cable companies. If "slim" TV packages like Custom TV become common and can be implemented without negotiations, then at least some customers will opt for skinnier bundles, which will hurt the bottom line at cable channels big and small.
Daniel Kline owns shares of Apple. 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.