Battle over the bundle: Verizon vs. media companies

Scott Mlyn | CNBC

A battle is brewing between Verizon and media companies who provide content to its FiOS TV service. At issue: the dramatically slimmed down, and lower-cost Custom TV bundle that's distinguished by the fact that subscribers can customize it with different channels month to month.

It's a small step toward breaking up the larger bundle of cable channels that customers traditionally have to subscribe to, a bundle that is core to media conglomerates' business model.

Now three of the largest media conglomerates have come out in vehement opposition to Verizon's approach, saying Verizon's use of their content in its Custom TV package falls outside their deals. This battle between content distributor and creators hints at what storms are brewing for the industry as consumers demand more choice. And it could be precedent-setting in the standard it sets for how consumers access and pay for content.

It started last week with ESPN's saying that Verizon couldn't under the terms of "existing agreements" place ESPN and ESPN2 into a separate sports tier outside its core package. Then this week NBC Universal said that "Verizon's announced Custom TV package does not comply with our existing agreement."

Fox also weighed in: "We reject Verizon's view that it can pursue the new packaging scheme it announced yet still comply with our agreements."

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But Verizon vehemently defended its position. "This is a product the consumer wants, it's all about consumer choice…. We believe we are able to offer these products under our existing contracts," the company said in its earnings call Tuesday.

The company also issued a statement: "As far as we are concerned, there is no dispute. FiOS Custom TV is a product consumers want, and it's all about consumer choice. We believe we are allowed to offer consumers and small businesses this choice and flexibility under our existing contracts."

"Now everyone is piling on," said BTIG analyst Rich Greenfield, who said this kind of battle is inevitable.

"As the video business matures and consumer behavior shifts away from linear television, the bundle as we know it has a problem."

But Greenfiled notes that this fight does not cast the content creators in a good light. "The problem the programmers face is that regardless of what their contracts say this is very consumer unfriendly. It certainly isn't putting the consumer first, it's putting the business model first and it raises the specter of government intervention, which I don't think anyone wants."

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