Delivering the first update on its groundbreaking "skinny bundling" strategy in nearly three months, Verizon (NYSE: VZ) said around 9,000 new subscribers signed on for its FiOS Custom TV video bundles.
But the tally would have been more, the operator said, if programmers unhappy about the new bundling strategy, including Disney, hadn't blacked out Verizon's ads for the new service in the second quarter.
In April, Disney's WABC-TV and ESPN Radio in New York both refused to run ads for the new FiOS product. "WABC-TV will not accept the new Verizon FiOS customized bundle creative," the station said in a terse statement.
"Given the disputes we had, we were blocked out from many content providers in advertising the product," Verizon CFO Fran Shammo told investors Tuesday during Verizon's Q2 earnings call. "And in New York and Philadelphia, we were unable to advertise the Custom TV package for approximately 45 days until we worked through that."
The uptake for Custom TV, Shammo said, exceeded Verizon's expectations, with more than a third of the company's 26,000 video customers in the quarter opting for the product.
The controversial bundling system allows subscribers to buy a package of 35 basic cable and broadcast channels for $54.99, then choose between two of seven add-on packages of networks themed around "sports," "kids," "news," and more.
Disney's ESPN has sued Verizon, claiming that having its flagship channel relegated to a sports add-on package is a violation of its FiOS licensing deal. ESPN has lost 3.2 million pay-TV subscriptions just in the last year, according to Nielsen. Verizon has said it will fight the lawsuit.
Shammo conceded that more customers than expected are opting not to take the add-on packages. "I will tell you, as far as the number of genres they take, it's less than what we had anticipated," he said.
However, this conservative approach by FiOS video customers is driving down programming costs, he said.
"It will put pressure on the top line, but will improve our profitability on programming standpoint," Shammo told investors. "Our customers are only paying for they want to view, and we're only paying our content providers for what our customers want to view."
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