Verizon may have figured out how to lower ESPN's astronomical monthly fees
ESPN does not like Verizon’s new pricing strategy for FIOS.
The wireless carrier and cable provider announced this week that customers will now be able to opt out of bundles and customize its television packages to include mostly just the channels they watch — and possibly exclude others like ESPN.
Verizon’s new “Custom TV” plans have moved ESPN's networks, which rank among the most profitable in the world, from basic cable to a sports “genre,” according to the company's website.
All cable channels have carriage agreements, or contracts allowing providers to broadcast channels, that set monthly per-subscriber rates paid to them by providers.
It all comes down to money — ESPN and ESPN 2's carriage agreements with Verizon require them to be on basic cable and also prohibit them from placing them on a sports tier, basic cable has far more subscribers than any specialized tiers — the fewer televisions that offer ESPN, the lower its ratings and less money it can make from cable and satellite providers.
This leaves the network in a weaker negotiating position when carriage agreements are up for renewal.
ESPN’s programming, which is dominated by live sporting events across almost every major sport, and several minor sports, is among the highest rated among all pay channels.
The Disney-owned network currently charges cable and satellite companies a monthly $5.54 per subscriber fee, by far the highest in the industry. TNT, the second-most expensive network, charges a relatively paltry $1.33 each month per subscriber.
ESPN ripped the announcement in a statement to Business Insider.
"Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements," the network contended. "Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package."
ESPN did not respond to a question asking what potential action it would take to try to reverse Verizon's tactics.
Custom TV is built on a base of 35 channels, none of which are ESPN, and augmented by several genres including kids, pop culture, lifestyle, entertainment, news & info, sports and sports plus.
"We believe we are allowed to offer consumers and small businesses this choice and flexibility under our existing contracts," Verizon said in a statement to Business Insider.
The packages can also be used as standalone or in tandem with internet and phone service, similar to traditional double or triple play packages offered my most providers. They have not replaced the standard FIOS Extreme HD, Preferred HD or Ultimate HD packages already being offered to customers.