April 27, 2015 / 5:05 PM / 4 years ago

UPDATE 2-ESPN sues Verizon, escalates battle over new pay-TV offering

(Adds background, details on CBS and analyst quotes)

By Jennifer Saba and Malathi Nayak

April 27 (Reuters) - ESPN sued Verizon Communications on Monday for breach of contract involving a new pay-TV offering, as the cable sports network fired the latest volley in a mounting battle with the telecommunications company.

ESPN, a division of Walt Disney Co, said in a filing in the Supreme Court of New York State that Verizon violated its obligations “under certain license agreements” and it wants Verizon to pay.

The dispute involves Verizon’s new Custom TV service, offering a slimmer package of 36 fixed channels with the option to add on genre-specific packages such as sports, kids or news. It lets subscribers change their packages based on their preferences every month.

In traditional subscriptions, customers pay for a large group of networks, often including ESPN.

Anthony DiClemente, an analyst at Nomura, said he could not recall seeing a lawsuit like this one.

“It’s largely before the papers are signed before the ink is dried on the media contracts we see disputes and blackouts,” he said. “It’s rare there is a lawsuit about a deal that has been agreed upon.”

Verizon’s Custom TV is a small step in the direction of letting customers build their own pay-TV service. Media companies have long resisted this partly because of concerns subscribers will drop less popular channels.

ESPN and other media companies with a lot of sports content say the package violates their contracts with Verizon.

A Verizon spokesman said the company is in compliance of existing agreements.

“Consumers have spoken loud and clear that they want choice and the industry should be focused on what the consumer wants and giving them what they want,” he said.

ESPN said in a statement, “We simply ask that Verizon abide by the terms of our contracts.”

Verizon announced on Monday that programming from CBS Sports Network will be available on Custom TV starting May 1.

Twenty-First Century Fox and Comcast’s NBC Universal also said last week that the new Verizon offering violated the terms of their contracts.

It was unclear whether Fox and NBC planned to follow ESPN’s lead and file suit. A spokeswoman for NBC declined to comment and a spokesman for Fox was not immediately available to comment.

Verizon will have to depend on ESPN and others to provide content for its new online video service that is expected to release this summer, Craig Moffett, an analyst at MofettNathanson, said. (Additional reporting by Subrat Patnaik in Bengaluru; editing by Savio D’Souza, David Gregorio and Ted Botha)

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