ESPN, Verizon Make Progress in Settling Lawsuit Over Custom TV

ESPN HQ - H 2015
Nick Caito/ESPN Images

Due in court later this week, ESPN and Verizon have instead told a New York judge that they've made "progress in their ongoing settlement negotiations" and wish to pause a legal dispute. As a result, the sports network's big lawsuit filed last April over skinny bundles — including a basic package without sports — might never get past the negotiating table again.

Verizon's FiOS service made a big announcement in April that it would let customers put together a personalized package of TV programming. "No other subscription TV service offers this level of personal control and value to consumers today," Verizon said at the time. "Although the number of TV channels the average American receives has increased by 46 percent over five years, Americans continue to view an average of 17 channels, according to Nielsen’s Advertising & Audience Report."

Broadcasters weren't happy. ESPN and 21st Century Fox even refused to run ads for Verizon FiOS.

That month, ESPN went the extra distance with a summons in New York court indicating that it was bringing an action against Verizon over a breach of contract claim.

"Plaintiff seeks specifically to enforce Defendant's contractual obligations to Plaintiff, to enjoin Defendant from unfairly depriving Plaintiff of the benefit of its bargain, and to require Defendants to pay damages to Plaintiff in an amount consistent with (but not limited to) relevant provisions in the parties' agreement," stated the summons.

ESPN, whose programming is the most valuable on cable television — and is soon due to reap more than $8 per subscriber from cable and satellite companies, according to reports — would likely have been asking the judge to interpret contracts that deal not only with the main network, but also its wider universe of channels including ESPN2, ESPNU and ESPN Classic and how they may be distributed. This is a subject that ESPN has gone to trial over already, though not in the context where customers got the option of having the expensive sports networks become merely optional.

Although there's no word of what a settlement might involve, Verizon has already made big changes to its Custom TV package — announcing just this past week of "upgrades" to CustomTV "with simpler choices and more variety." The old package included a base set of 35 channels plus the option of adding genre packs in seven categories — kids, pop culture, lifestyle, entertainment, news and info, sports and sports-plus. The amended version has just two entry-level plans: "Essentials" and "Sports & More" with "genre-based add-on packs" such as Movie Lovers and Kids Teens & Family.

Upon the announcement, ESPN said it was "encouraged by the changes.”

If settlement talks break down, and the case moves forward, Verizon could raise some over its own claims over the practice of bundling and tying.

In December, for instance, Verizon nodded to ESPN and some of its co-owned stations such as the SEC Network in an ongoing FCC review of what constitutes "good faith" when broadcasters and distributors negotiate retransmission consent licenses.

"Sports programming in particular is highly desired and significantly expensive in the current video marketplace," Verizon stated in a comment. "An increasing number of regional sports networks (RSNs), affiliated with the same handful of program producers and/or incumbent cable operators, control access to both professional and collegiate sports programming and demand substantial per-subscriber rates for distribution on non-affiliated MPVD networks. Given the importance of local sports programming to many consumers in the area, and the huge popularity of live sports shows generally, an MVPD is often forced to meet these demands in order to put together a competitive bundle of programming to attract and keep subscribers. Yet, some RSNs demand high per-subscriber fees, refusing distribution agreements that would allow the distributor to limit this programming to those subscribers who are interested in watching it."

At the moment, it appears as though the parties will be trying to resolve differences way from the limelight of an open courthouse.