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Verizon throws cold water on Disney's objections over new 'skinny bundles'

A Verizon executive says the company has the legal right to repackage Disney's ESPN sports channel as part of its new initiative to offer consumers programming at reduced prices.

Disney says Verizon doesn't have the right to reuse some of its channels in a new, cheaper package for customers. Verizon says Disney is wrong.

That's the gist of the latest flare-up over the future of TV, in which Verizon plans to offer a small package of channels for a cheaper rate. Customers can then choose smaller, supplemental channel packs of about 10 to 17 channels for $10 more, ultimately giving customers more choice over what channels are beamed to their homes.

But Disney doesn't like that plan. When Verizon announced the new scheme late last week, it planned to include the popular sports channels ESPN and ESPN2 as part of a separate sports-focused package of channels.

Disney, which owns ESPN, objected almost immediately to the announcement. Over the weekend, it told The Wall Street Journal the move violates its licensing contract with Verizon. In particular, Disney said its agreement with Verizon precluded ESPN's channels from being moved to a separate tier, outside of a core cable subscription package. Effectively, all cable subscribers should get ESPN by default.

Verizon, of course, disagrees, and argued that the company is well within its rights to offer the new package.

"We believe that we are allowed to offer these packages under our existing contracts," said Fran Shammo, Verizon's chief financial officer, during a conference call Tuesday.

The new smaller packages are a reflection of how consumers want to buy video services, Shammo said, and the company is merely filling a need. Online streaming services, such as Netflix and Hulu, give consumers more flexibility in picking and choosing the programs they want to watch. These services appeal to cord cutters, who ditch paid TV subscriptions and watch online services.

The disagreement between Verizon and Disney comes at a critical time. The paid TV market has steadily been losing subscribers since 2012, according to data from the Convergence Consulting Group. The losses are expected to continue as consumers look for alternatives. A Nielsen study released last year concluded that the average US household is paying for 189 channels but watches just 17 of them.

"If you look at the TV bundles today, most people only on average watch 17 channels," Shammo said on that conference call. "This is a way to give consumers what they want."

Disney did not immediately respond to a request for comment.