Fios customers warned of possible ESPN, ABC blackout as Verizon, Disney fight over fees

Verizon’s Fios TV customers could soon lose access to ESPN and ABC if it can’t reach a renewal deal with Walt Disney Co.

Verizon emailed Fios video subscribers Wednesday, warning that the contract between the two companies will expire Dec. 31 at 5 p.m.

The two sides are negotiating an agreement for Fios to continue airing Disney-owned networks, which include ESPN, Disney Channel, and ABC affiliates in Philadelphia and New York. Verizon told subscribers that Disney has rejected its offers.

The clash of the media giants couldn’t come at a worse time for football fans. ESPN and ABC will air several college football bowl games on New Year’s Day and one of the NFL wild-card playoff games on either Jan. 5 or Jan. 6. If the two sides don’t reach a deal by kickoff, consumers can get Philadelphia ABC affiliate WPVI over the air with the purchase of an antenna.

“Disney is currently proposing that Verizon pay hundreds of millions of dollars more for its programming, despite the fact that many of its key networks are experiencing declining viewership,” Verizon said in the notice to Fios customers. Disney is also demanding that Verizon include ACC Network, a regional sports channel, in order to carry other Disney-owned channels, according to Verizon, which has more than 4.5 million Fios video subscribers.

Disney began running messages Wednesday morning notifying Fios customers that they may lose access to Disney-owned programming. In a statement, Disney said Verizon is “refusing to reach a fair, market-based agreement.”

“We are working hard to make sure WPVI, the Disney and ESPN networks, and Freeform stay available to Verizon FiOS customers in the greater Philadelphia area," the statement said. "Even though WPVI will always be available free over-the-air, we urge Verizon to work with us to ensure this community — that we are so proud to be a part of — retains full access to the full portfolio of news, sports, and entertainment networks.”

The dispute is the latest clash between content providers and distributors, leaving consumers stuck in the middle. In November, 2.5 million Dish Network customers lost HBO as the two sides failed to reach a renewal agreement.

Content makers typically ask distributors to pay more to carry their TV channels, while distributors try to keep costs low to compete with cheaper online streaming options, such as Netflix, Hulu, and Sling TV. The fee disputes have become more contentious in recent years as consumers get more options to access programming, said Bloomberg analyst Geetha Ranganathan.

There have been 137 such blackouts in 2018, according to the American Television Alliance, which represents the interests of such content distributors as Verizon, Spectrum, Dish, and CenturyLink.

Content owners such as Disney earn most of their media network revenue from fees paid by distributors, known as affiliate fees. Disney is one of the most exposed to affiliate fees because of the enormous amount that ESPN collects, Ranganathan said. The sports network gets $8.14 monthly per subscriber, compared to roughly $1 for the average channel, she said.

Meanwhile, distributors such as Verizon are making much smaller profit margins on their video products compared with their broadband services, Ranganathan said. “It almost makes no sense to keep accepting these increases in price … because they’re just making no money off of it,” she said.

This dispute comes as Disney prepares to launch its own direct-to-consumer streaming service in 2019. Disney already offers a sports streaming service called ESPN+ that costs $4.99 a month. And Disney-owned programming is well-represented on such services as Sling and DirecTV Now, Ranganathan said.

“Disney is taking an aggressive stand because they know they can encourage customers to cancel Verizon and go for a virtual service,” she said.

These fee disputes usually come down to the wire but are resolved most of the time, she added.