In a case that could well establish a framework for the relationship between network carriers and media content producers, Walt Disney Co. (NYSE: DIS) filed suit Monday morning against Verizon Communications Inc. (NYSE: VZ) for allegedly violating the contract Verizon has with ESPN for distributing the network’s sports programming.

If ESPN prevails, then it retains control over the content it has created, and the streaming digital world will very likely look a lot like the existing pay-TV world. If Verizon prevails, then any of the carrier networks can freely offer a la carte programming in any way the carriers choose. Companies like Comcast Corp. (NASDAQ: CMCSA) that are both carrier networks and content providers (Comcast, for example, through its ownership of NBC) may even reap outsize rewards.

This cannot have been a surprise to anyone who’s been paying attention. A couple of weeks ago, Verizon introduced a low-cost plan for its high-speed fiber (FiOS) subscribers that included a basic package of 36 channels and additional thematic packages, including one for sports, that included ESPN, Fox Sports and NBC Sports Network. The thematic packages cost an additional $10 a month and can be added or deleted at will, as long as subscribers maintain a minimum of two every month.

At least that is what Verizon planned. ESPN, which is the most expensive piece in any pay-TV package, was not amused, and made it plain very quickly following Verizon’s announcement that ESPN’s contract with Verizon did not permit the carrier to slice-and-dice its packages in this way. The very weekend that Verizon announced its plan an ESPN spokesperson said, “Among other issues, our contracts clearly provide that neither ESPN nor ESPN2 may be distributed in a separate sports package.”

ALSO READ: Fast and Furious Franchise Will Ride Again in 2017

For its part, Verizon said that its offer does not violate the carrier’s contract with ESPN and did not back down, so ESPN went to court this morning.

The difference of opinion probably lies in how the two parties interpret what can be done with digital rights. Content producers like Disney and ESPN clearly rule the roost in the pay-TV universe and have fought tooth-and-nail to maintain their dominance in the digital world.

When Time Warner Inc.’s (NYSE: TWX) HBO made its streaming digital content available for $16 a month, first to Apple TV owners and after three months to anyone, the world did not change, but the operating manual for the pay-TV world did. If HBO can offer to sell its product a la carte, then the carriers want the ability to do the same thing. Can the carriers threaten to keep HBO off their fat pipes?

Not likely, especially now that the Federal Communications Commission (FCC) has ruled that the Internet is a common carrier. Verizon is virtually certain to file suit to prevent that from happening, but the U.S. Supreme Court signaled more than a year ago that if the FCC wanted to regulate the Internet the best way to do that was by declaring the Internet to be a common carrier. That means that Verizon, AT&T and other networks cannot refuse to carry virtually all programming and, even worse, at a government-regulated price.

The issue remains a long way from being resolved, but this lawsuit is a big deal. We’d bet that there is too much at stake for either side to take a chance on losing, especially if the odds of winning do not heavily favor one side or the other. And while the government cannot order Disney to make ESPN available at a reasonable price to everyone, the dreaded market can, and if ESPN wants to remain the most lucrative network, it will need to listen to the market.

ALSO READ: IMAX Stock Gets Boost From Extended Warner Bros. Deal

Verizon’s stock dipped after news of the suit was revealed Monday, but the stock traded up about 0.05% in the mid-afternoon at $50.29 in a 52-week range of $45.09 to $53.66.

Disney shares traded up more than 1% in the afternoon, after posting a new 52-week high of $111.66 earlier in the day. The stock’s 52-week low is $76.88.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.