LOS ANGELES, May 12 (Reuters) - Cable and satellite television companies fighting to retain customers in the face of online competition say a high-profile legal battle will not stop them from experimenting with ways to attract younger viewers.
Walt Disney Co’s ESPN has sued to stop Verizon Communications from making its sports channel part of an add-on option for customers of its new Custom TV package, a legal fight that has been the talk of industry conferences and discussions with investors and analysts.
Distributors say their contracts give them room to test other types of packages for a portion of their customers and that they will continue rolling out so-called “skinny” bundles of channels with fewer options at lower prices.
Defections by younger viewers are threatening the future of traditional pay TV. Distributors see slimmer plans as a lifeline to a generation that watches online services such as Netflix Inc and Google Inc’s YouTube.
If they can entice viewers with cheaper plans, the hope is that they can later move them to the more expensive subscriptions with hundreds of channels. That could help preserve their subscriber base of roughly 100 million customers.
The biggest U.S. cable operator, Comcast Corp, said it has leeway to try smaller channel bundles. “We can do packages within the current rights we have,” Comcast Cable Chief Executive Officer Neil Smit said in a recent interview.
Agreements with programmers often allow distributors to experiment with some of their customers, said Mark Bowser, chief financial officer for Cox Communications.
A deal might say, for instance, that certain channels have to be included in packages taken by 85 percent of customers, he said.
That gives you “15 percent that you can work with,” said Bowser. “What we are all trying to do is figure out how we do that in the confines of the current agreements.”
He also said he would like more flexibility to experiment, an issue that may come up in future contract talks.
Part of ESPN’s argument with Verizon is that its channel cannot be distributed as part of an optional tier.
An ESPN spokeswoman said Verizon made “unilateral decisions” about the offer. Verizon said it is acting within its rights, but it is unclear what provisions in its contract it is citing.
Both companies have declined to comment on contract details.
ESPN has backed experimentation with products such as Dish Network Corp’s Sling TV. It has not challenged other plans that exclude its network, such as a Cox TV Economy plan.
Distributors expect more attempts to offer Internet service with limited television, such as a Cablevision Systems “cord cutter” plan of broadband service and a digital antenna for broadcast stations.
Dish’s Sling TV, an Internet-delivered service of about two dozen channels, including ESPN, goes for $20 a month.
For its traditional satellite TV package, Dish offers “good, better, best” packages at different prices, Dish Chairman Charlie Ergen said on a conference call with analysts and investors.
“There is flexibility in programming,” he said.
Ergen said that programmers were especially open to Web offerings that tended to pick up new customers.
“We’ve already demonstrated our willingness to experiment,” said Tonia O’Connor, president of content development and corporate business development for Univision Communications Inc , which has made channels available on Sling. “We are in conversations with many other distributors about the same kind of experimentation,” she added. (Reporting by Lisa Richwine, Editing by Peter Henderson and Ken Wills)