The Math Behind ESPN's Fear of Verizon's Skinny Bundles

ESPN filed suit against Verizon Communications on Monday over the pay TV carrier's attempt to cut down the size of cable bundles. Verizon is offering its FiOS customers a "Custom TV" option with a $55 base package of channels that allows a choice of two small bundles from a menu of seven. ESPN and ESPN2 are lumped with 10 additional networks in a sports channel pack next to alternative packs for viewers who prefer pop culture or children's programming. The Disney-owned network says this breaks the terms of its contracts with Verizon. The carrier says it's giving the people what they want.

Whatever the legal merits, the offering from Verizon signals a willingness to try new business models. No network benefits more from the status quo than ESPN, which has built a $7.5 billion revenue pipeline from the monthly subscriber fees that carriers pay programmers. That system depends on millions of customers who pay for ESPN but don't watch it. And no one really knows what the pay TV business would look like without these customers.