This week we shared with you the major story from the cable/satellite world that Verizon FiOS was taking a step towards breaking up the cable bundle. Verizon would break up their service into various packages where customers could pick and choose different packs of channels to place on their respective system. Consumers would have access to a base package of channels while then being able to add themed packs of channels onto it. While it seems to be a souped-up version of other cable systems with basic and premium tiers, it’s one of the biggest fractures of the cable bundle to date.
The debate about the cable bundle that has been raging for some time now comes down to this. Advocates of a la carte argue that consumers should only have to pay for the channels that they watch. If I never turn on Bravo, why should I have to pay for it? Advocates of the bundle argue that by lumping all the channels together, prices are kept down. And if the a la carte model were to take effect, you could end up paying exponential costs per channel. As you can see, there’s two valid sides here.
That’s why it’s interesting to see the most powerful cable network, ESPN, firmly come out against Verizon’s plan. In fact, the network says it violates their agreement with the provider.
About that Verizon plan to break up the pay-TV bundle into smaller bundles?
Not so fast, says Disney’s ESPN. Verizon’s plan, which it’s supposed to start marketing this weekend, violates agreements the programmer has with Verizon’s Fios TV unit, according to ESPN.
Here’s the statement from an ESPN spokesperson: “Media reports about Verizon’s new contemplated bundles describe packages that would not be authorized by our existing agreements. Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”
ESPN’s statement — which complains specifically about having its networks relegated to an optional sports tier, instead of being included in the base package — suggests that Verizon never got an agreement from the programmer before it announced its plan. A person familiar with another programmer included in Verizon’s offering said that programmer hadn’t signed off on Verizon’s plan either. That person suggested that Verizon thought its agreements allowed it to try different offerings as a limited test.
In Verizon’s proposal you can see why Bristol would be non-plussed with the changes. ESPN would be outside the base tier and lumped into a sports pack with NBCSN and Fox Sports 1. Other sports networks like NFL Network, Golf Channel, MLB Network, etc. would be on a Sports Plus channel pack.
ESPN has the most to lose with the attack on the cable bundle. At $6.10 per month per subscriber, ESPN makes infinitely more coin in subscriber fees than any other network. Consider that SNL Kagan research shows the median per channel cost is just 14 cents. But ESPN makes that 6 bucks a month from everybody who has a cable or satellite bill, whether you watch a second of ESPN or watch it religiously. That astronomical fee is one of the main sources of income for ESPN and why it’s so difficult for any other network to compete when they’re making less than a dollar per month per subscriber. In an a la carte or “sports pack” world, ESPN risks losing out on some of that money from customers who would no longer have to pay to not watch ESPN.
However, ESPN potentially also has the most to gain in an a la carte world. ESPN could reasonably cost upwards of $36 per subscriber per month if sold independently to consumers. Given the passion of sports fans and how ESPN has cornered the market on live sports, even casual fans would have to fork over the cash to risk not losing out on the biggest sporting events.
Verizon’s plan is a middle ground that simply doesn’t work for ESPN because it’s neither here nor there. It allows subscribers to skip out on the network without an increase in fees. And until the day a la carte comes, ESPN is going to do everything it can to make sure it’s getting its 6 bucks a month from everyone with a cable or satellite bill.