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The Dish-Disney Deal: 3 Things You Should Think About
Washington, D.C. (March 4, 2014) - The announcement last night that Dish and Disney have reached a new programming agreement continues to reverberate today with analysts and industry officials vigorously debating the deal's merits.
The two points of the pact that are getting the most buzz are:
* Dish's agreement to modify its ballyhooed ad-skipping feature (Auto Hop) on its Hopper HD DVR.
Auto Hop can automatically skip commercials during the recorded playback of prime time shows on ABC, CBS. NBC and Fox. But now Dish subscribers will have to wait three days after the airing of an ABC show before they can use the Auto Hop feature. In return, Disney, which owns ABC, agreed to drop its lawsuit against Dish. (The networks have sued Dish over Auto Hop, claiming it violates their copyrights and carriage agreements.)
* Disney's willingness to allow Dish to transmit live ABC, ESPN and Disney channels over the Internet as part of a yet-to-be-launched Net TV service.
Some analysts today are saying the agreement means that Dish will soon launch a Internet TV offering separate from its satellite service. The service, they opine, would likely include a smaller package of channels for less money to attract people who can no longer afford traditional pay TV service.
I agree those two elements of the deal are headline-grabbing and possibly game-changing. But there are three other things about the Dish-Disney deal that people are overlooking -- three little things that could have an even greater impact in the months ahead. And they are:
1. What if Dish and DIRECTV band together for that Net TV service?
Both Dish and DIRECTV have said publicly that they are interested in a Net-based, pay TV service that would be entirely separate from their satellite operations. Both have also said they believe a merger of the two companies would make sense, but they have concerns that it would not be approved by federal regulators. The thinking is that a satellite merger would be ruled anti-competitive because it would reduce the consumer's choice among satellite providers. (The FCC nixed a DIRECTV-Dish merger proposal in 2002 on grounds that it would be anti-competitive.)
However, a new Internet TV business operated by both DIRECTV and Dish -- one with different programming packages and prices -- would actually increase our choice in satellite-based programming. You could sign up for DIRECTV's satellite service, Dish's satellite service, or the new Internet TV service from Dish and DIRECTV. The consumer's choice in satellite-based programming would go from two to three and it's hard to see the FCC or Justice Department having a problem with that.
There's a precedent for this. DIRECTV and Dish recently announced a joint project in which politicians can run ads targeted to specific households. When the announcement was made, there was no cries about anti-trust or competitive complications and I don't think a joint Internet TV service would provoke any, either.
For Dish and DIRECTV, the joint Net TV business would allow them to tap a new audience without investing as much money and resources if they did so individually.
2. What if Dish doesn't launch a Net TV service?
As stated earlier, many analysts, such as Rich Greenfield of BTIG Research, believe it's a slam dunk that Dish will offer a Net TV service after obtaining the rights to the Disney-owned channels. However, Dish Chairman Charlie Ergen is famous for ditching projects before he reaches the finish line if he has last-minute doubts.
For example, Dish planned to merge with News Corp. more than decade ago, but the two companies broke it off after Ergen reportedly engaged in frequent arguments with News' top executives. Just two years ago, Dish purchased Blockbuster Video in a bankruptcy auction and said it planned to challenge Netflix. Several months after the buy, Dish began to retreat from the pledge and last year decided to close all Blockbuster stores. Now, Dish refers to Blockbuster as a "discontinued asset."
And I could go on. There are many examples of Ergen playing with a concept in public, but dropping it when it appears to be too expensive or too risky. The Net TV business could be another idea whose time will not come.
3. What will Dish do with the other broadcast networks?
Although Dish has kissed and made up with Disney, Fox, CBS and NBC are still hopping mad over the Hopper. Will Dish ask the remaining three for the same deal it received from Disney? To do so, the companies would have to renegotiate their carriage deals. (The Disney agreement had expired, which led to last night's new contract.) If Dish does -- and the networks balk -- what would that mean for a Dish Net TV business? If Dish can't obtain streaming rights from NBC, CBS and ABC, it wouldn't have much of a lineup.
Update: Bloomberg News reported this afternoon that Dish will offer the same terms to the other networks. The Los Angeles Times reports that CBS CEO Les Moonves said the Disney deal was a "great first step." Dish's agreement with the network expires at the end of the year, the Times writes.
These three little things will make Dish a fascinating company to watch in the coming weeks and months.
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