Cutting the Cord: What does ESPN vs. Verizon mean for consumers

For months, consumers looking to cut or trim the pay-TV cord have only seen their options expand with the recent arrivals of Sling TV, PlayStation Vue and HBO Now.

Then, last week ESPN filed a breach of contract suit against Verizon after the telecom giant began offering a "Custom TV' plan that trims down the typical 100-plus channel pay-TV package to just more than 35 channels for $55 a month.

The legal battle is a setback for consumers because "they have been wanting" slimmed-down pay-TV options, said Richard Doherty of industry consulting firm The Envisioneering Group.

He says that both sides are at fault: Verizon for either not adhering to their contracts – or ignoring them – and ESPN for making a public stink about the situation. A faceoff of this magnitude could embitter consumers and draw the attention of regulators and legislators. "It could backfire," Doherty said.

What likely spurred the worldwide leader in sports, and parent company Disney, to action was Verizon giving consumers the ability to create your own pay-TV package with or without ESPN. Typical contracts require channels be part of a certain tier of programming and be located next to other specific channels in a programming guide.

"We simply ask that Verizon abide by the terms of our contracts," ESPN spokeswoman Katina Arnold said last week.

Verizon's Custom TV" package includes many popular cable channels such as AMC and CNN. To get ESPN, ESPN2 and ESPNU, subscribers had to choose a sports package as one of the two genre-specific channel packs they get at no extra cost.

But they could opt to sidestep sports and choose from other program packs including kids (Disney Channel, Nickelodeon) and entertainment (TBS, TNT). A separate sports plus package includes ESPNews and regional sports networks (an additional $4.99 fee is required). Beyond the two channel packages that you get as part of the deal, you can also add more for $10 each.

Typically, more choice is great. But current customers are finding they won't save much money by switching to Custom TV and they will lose a lot of channels. My colleague Jefferson Graham priced it out that he could save just more than $6. Research firm MoffettNathanson arrived at the same conclusion.

"Really only Verizon has had the guts to try this," Doherty said. "But why they tried it this way and why the savings aren't as great as everybody thought they would be, I don't know."

The bad news is that this could just be the first in a round of legal squabbles. "There is a real power struggle between the service providers, the programmers and consumers, each one who wants something different," said Mike Goodman, director of digital media strategies at research firm Strategy Analytics.

Consumers want lower pay-TV bills and only the channels they care about, while programmers want to protect a status quo that protects the content collective.

The typical home watches 17 channels, Goodman says. If consumers were able to customize their programming package and order only the channels they want, prices could rise from $70 to $75 for a 60-75 channel package to perhaps $100 for that customized 17-channel package.

"There is an inexplicable movement to a la carte (programming)," he said. "But it's not going to be the panacea that consumers think it's going to be. It's not going to be cheap."

The good news: Consumers speak with their wallet and programmers and service providers know that change is imminent. "It's inevitable," Doherty said.

"Cutting the Cord" is a regular column covering Net TV and ways to get it. If you have suggestions or questions, contact Mike Snider via e-mail. And follow him on Twitter: @MikeSnider.