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Why Is Verizon Fighting With Programmers?

Alan Breznick
4/28/2015

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."


Want to know more about OTT, multiscreen video and other next-gen video technologies? They will be a few of the many topics covered at Light Reading's second Big Telecom Event on June 9-10 in Chicago, which will include a special Video Summit. Sign up today!


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

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thebulk
thebulk
5/6/2015 | 2:07:58 PM
Re: Are you kidding?
I don't think it will lower their revenue, I think providers could make more, if they have content the market actually wants, which for some providers is a big if. 
KBode
KBode
4/30/2015 | 4:43:26 PM
Re: VZ OTT
To make a truly successful OTT play, you have to be willing to cannibalizing your existing cable customers as a sacrifice to play on the bleeding edge. Verizon's the very last type of company that's going to be willing to do that.
wanlord
wanlord
4/29/2015 | 7:52:35 PM
VZ OTT
Didn't VZ try OTT a few times like with Redbox Streaming? They couldn't get that right and killed it, why does anybody think they will make this work? They tried to build a CDN and failed, so bought EdgeCast. They tried building a Video Distribution Management System spending billions and failed.  They have a history of failing on complicated projects like this. They are good at building, buying, and outsourcing, not creating anything. They don't have enough eyeballs on FiOS TV to have any leverage with these progammers who are building their own OTT services.

 

 
brooks7
brooks7
4/29/2015 | 12:40:37 PM
Re: Are you kidding?
Again, it is only money that makes people want to change.  It might cost them more overall.

Think of it this way.  Do you think Disney is going to spend a lot of time and money on a system that lowers their revenue?

seven

 
thebulk
thebulk
4/29/2015 | 12:07:47 PM
Re: Are you kidding?
It may cost them more money per channel but less money overall. So, perhaps not a great value, but could still lower a line item in the home budget. 
brooks7
brooks7
4/29/2015 | 11:48:32 AM
Re: Are you kidding?
So if you get more content than you want and the model costs less than why change models?

That is why people are assuming that going a la carte will cost them less money.  If it cost them more money, they would not push for it.

seven

 
thebulk
thebulk
4/29/2015 | 1:24:53 AM
Re: Are you kidding?
I don't think everyone is assuming that it will make content cheap, just that they will not be able to pay for only the content they may want. You may be right about the price of content being impacted by such a model though. 
steve q
steve q
4/28/2015 | 11:51:56 PM
Re: Are you kidding?
I just wish verizon went at it let give those customers that like to leave cable TV and start to do streaming. Maybe they will gain more customers then with the cost of cable. After comcast is looking to those that like it service they have a package geared to them.
Mitch Wagner
Mitch Wagner
4/28/2015 | 5:25:16 PM
Controlled transition
Both Verizon and ESPN are trying to control the transition from the old business model to a new one while preserving existing revenue streams. 
brooks7
brooks7
4/28/2015 | 4:19:25 PM
Re: Are you kidding?
Here is my prediction:

OTT vendors develop their own solutions.

Since people only want to watch certain shows, those will be the ones that survive.

In order to earn more money the pricing on popular shows will rise significantly - For example a Big Bang Theory might be $10 an episode while an episode of The McCarthys will go for $0.10.  And we will end up paying more than we do today.


The assumption that everyone is making is that this will make content cheap.  No - Good Content is always expensive.

 

seven

 
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