Why Is Verizon Fighting With Programmers?Why Is Verizon Fighting With Programmers?

If Verizon is seeking to drum up major programmer support for its forthcoming OTT video service, it sure has a funny way of doing it.

Indeed, at least a few industry observers are scratching their heads over some of Verizon Communications Inc. (NYSE: VZ)'s latest moves to beef up its new skinny TV bundle, known as FiOS Custom TV. Despite the loud objections of such major programmers as 21st Century Fox and Walt Disney Co. (NYSE: DIS) and now a lawsuit by ESPN, Verizon has been adding the companies' sports channels to its Custom TV sports package.

In its lawsuit filed Monday in New York State Supreme Court, ESPN is seeking an injunction and damages against Verizon for placing the sports programmer's channels in its two add-on sports packages, not its basic skinny bundle. ESPN charges that this move violates its programming agreement with Verizon, "unfairly depriving" ESPN of "the benefits of the bargain" that Custom TV provides to subscribers. As part of Custom TV, Verizon offers a package of up to 44 basic cable and broadcast channels for about $55 a month, plus another seven add-on, genre-specific packages for an extra $10 apiece. (See Verizon Skinnies Down With FiOS.)

"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," ESPN said in a prepared statement. "We simply ask that Verizon abide by the terms of our contracts."

However, Verizon, which just announced a pact with CBS Sports Network to add that channel to its sports packages, shrugs off such complaints. "Consumers have spoken loud and clear that they want choice, and the industry should be focused on giving consumers what they want," the company said it in his own prepared statement. "We are well within our rights under our agreements to offer customers these choices."

Whether Verizon is or is not within its rights, this does seem a curious fight to pick with ESPN, Fox and the other programming powerhouses. That's why industry analysts like Craig Moffett and Michael Nathanson of MoffettNathanson LLC , are scratching, if not shaking, their heads over Verizon's moves.

"We still can't figure out what Verizon's end-game is here," the two analysts said in their latest report to clients yesterday. "For one, given their interest in launching their own OTT service later this year, we are not sure what is gained from going to war with their largest content providers."

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That's a really good question. I'm not sure what Verizon stands to gain from this fight either. Even if it's trying to score some legal or political points with programmers, the short-term gain may not be worth the long-term pain. You can bet that ESPN and Fox Sports executives will not forget this battle later on.

It will be interesting to see what happens when Verizon introduces its long-awaited OTT video service this summer or fall. Don't be surprised if there are more legal fireworks.

— Alan Breznick, Cable/Video Practice Leader, Light Reading