Appearances have proven true, with ESPN filing suit against Verizon in New York Supreme Court yesterday. Details of the suit are scarce, as ESPN hasn’t yet filed a complaint, but the summons (shown below via Ars Technica) indicates they will be seeking injunctive relief and damages based on their breach of contract claims.
Without seeing the agreement between ESPN and Verizon or ESPN’s soon-to-be-filed complaint, we can only speculate as to what ESPN’s breach of contract argument will be. What is clear is that ESPN (as well as 21st Century Fox and NBCUniversal) sees Verizon’s new FiOS cable packages that move their programming to optional tiers as a threat to their current business model, which is based on their programming appearing on all basic cable packages, bringing in hefty subscriber fees.
ESPN, in a statement provided to Ars Technica, said, “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. We simply ask that Verizon abide by the terms of our contracts.”
Deirdre Hart, a spokeswoman for Verizon, responded to ESPN’s statement, saying, “Consumers have spoken loud and clear that they want choice, and the industry should be focused on giving consumers what they want. We are well within our rights under our agreements to offer our customers these choices.”
ESPN’s position in their suit might be that their agreement with Verizon stipulated that their channels would appear on all basic cable packages, thus FiOS’s optional packages are a breach of contract, while Verizon’s defense could be that Verizon FiOS is a distinct offering featuring new fiber optic technology that isn’t bound by the original agreement.
According to The Washington Post, an ESPN spokesperson added “that the disagreement was not primarily about money, but about sending a message that cable partners can’t ‘unilaterally change deals’ without permission.” Which is of course, nonsense. As Deep Throat said in All The President’s Men, “Follow the money.”
ESPN has over 100 million cable subscribers via the major cable companies who each pay ESPN about $6.10 per subscriber. According to Michael Nathanson of MoffetNathanson Research, if ESPN went fully a la carte, their users would have to pay $36.30 per month. If cable operators are able to shift ESPN to option tiers, their subscriber base would surely fall, hurting their bargaining position when their current agreements expire. In addition, ESPN doesn’t have an opportunity to negotiate higher subscriber fees for these optional tiers, which must have been part of the year long negotiation between ESPN and Dish Network regarding their new streaming service SlingTV.
I would be surprised if this suit went to judgment, as ESPN has already set a precedent with Dish Network for new streaming cable service agreements. It may take a year or so for the lawyers involved in this matter to be satisfied with their billings, but I suspect we’ll see a new agreement between ESPN and Verizon that will account for FiOS and allow ESPN to inflate the sports cable bubble for years to come.