Content, Disney, ESPN, TV, Verizon

ESPN shows Verizon it wasn’t bluffing

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When Verizon announced it would be launching Custom TV, its semi-a-la-carte FiOS offering, and news first broke that some of its content partners didn’t like it, I tweeted this:

My theory here was that Verizon clearly knew its contracts forbade such a move, but that it was banking on such strong consumer support for the idea that any content owner who publicly opposed it would immediately be seen as anti-consumer. I characterized that attitude as naive, but everything Verizon has said and done since then seems to bear out the theory. Firstly, Verizon went ahead and launched the service anyway over the following weekend, and in its marketing materials it clearly played up the pro-consumer angle:

Verizon Gives Customers an Unrivaled Level of Choice With the New FiOS ‘Custom TV’…

FiOS Custom TV is designed to give customers more freedom and flexibility to choose the perfect TV plan for their home…

FiOS Custom TV delivers consumers more choice and control over their TV…

On Verizon’s earnings call this past week, the company reiterated this approach, in response to a question from an analyst:

Look, this is a product that the consumer wants. It’s all about consumer choice. I mean, if you look at the TV bundles today, most people only on average watch 17 channels. So, this is a way to give consumers what they want on a choice basis. And we believe that we are allowed to offer these packages under our existing contracts.

Note that Verizon isn’t formally relying on the pro-consumer strategy – it still claims that it believes its contracts allow this unbundling of channels. But it’s very clear that it intends to lean heavily on the pro-consumer angle in its public communications, if not in court.

Now, of course, ESPN is suing Verizon over Custom TV, which is a pretty significant step when it comes to disputes between pay TV providers and content owners, which never usually get this far. ESPN (and its owner, Disney, referenced in my original tweet) clearly isn’t intimidated by Verizon’s strategy. It’s hard to see this as anything other than ESPN calling Verizon’s bluff in the strongest possible terms.

Things could still go one of two ways here:

  • Verizon ultimately prevails in court and gets to keep its Custom TV offering. This outcome would be groundbreaking for the industry as a whole, and not just for Verizon – it would potentially open the door for more experimentation by pay TV providers along similar lines.
  • Verizon loses in court and is forced to withdraw the service, including canceling service for whichever customers have taken up the option. This would be embarrassing, to say the least.

However, the problem with the whole approach is that it sets Verizon at odds with the content owners, and especially the most powerful, Disney, in a far greater way than any simple carriage dispute does. Verizon has set itself up in opposition to the content owners on this question, not just in a matter of dollars and cents, but on the whole central question of how content gets packaged and delivered to customers. Even if Verizon wins the case (which seems like a stretch), it seems likely to damage Verizon’s relationships with these critical partners in the TV business irreparably, which could well have nasty longer-term effects too.