HBO Fires Back at Dish in Blackout Tussle

HBO chief Richard Plepler on Wednesday issued a response toDish CEO Charlie Ergen’s claim that the ongoing impasse between the companies was the result of a purely anticompetitive play on AT&T’s part.

It was Dish that dropped HBO and Cinemax signals at midnight on Oct. 31, blacking out programming for subscribers, Plepler said.

That was the first time in HBO’s nearly 50-year history that any pay-TV service dropped the premium channel from its lineup.

Negotiations between the two companies broke down last week, and in a Wednesday earnings call, Dish’s Ergen blamed the situation on the recent merger of AT&T with HBO parent Time Warner.

AT&T’s intention was to drive customers to Dish competitor DirecTV, which AT&T also owns.

The sticking point in the heated negotiations was HBO’s insistence that Dish commits to paying for a minimum number of customers, even if far fewer actually wanted the premium channel.

AT&T sought the contract provision as a way to support its HBO free-for-life offering to DirecTV customers, Ergen suggested.

The breakdown with HBO was far from Dish’s only bad news. The company reported its worst quarterly subscriber decline to date. It lost 367,000 subscribers to its satellite service and gained just 26,000 subscribers to its Sling TV streaming product.

However, revenue of US$3.4 billion for the quarter, as well as earnings, topped analysts’ expectations.

Univision Black Out Continues

Besides HBO and Cinemax, high-profile channels currently missing from the Dish lineup include Spanish-language Univision, which went dark in June following a testy negotiation.

Dish subscribers received the channel through the Dish Latino package. That breakdown occurred in part due to Univision making some its programming — notably soccer — available for free via Facebook Watch and other online outlets.

That diminished the value of Univision, according to Dish.

For its part, Univision said it extended an olive branch but that Dish so far has shown no willingness to back down. That could be a portent of how the HBO negotiations will proceed in the days or weeks to come.

“Dish has a long history of aggressive carriage negotiations with networks,” noted Brett Sappington, senior director of research at ParksAssociates.

“It has been unafraid to have blackouts or to eliminate channels from their packages if they cannot reach terms that make sense for Dish,” he told the E-Commerce Times.

“Carriage agreements are often contentious, but we have seen an escalation in blackout brinksmanship over the past few years,” Sappington added. “Pay-TV providers are already facing declining subscribership and new low-cost online alternatives, making it difficult for them to raise prices. At the same time, networks continue to face increased costs of their own.”

More Than Pricing

Dish has had other very high-profile carriage disputes with various content providers. Prior to the ongoing HBO blackout, the most notable involved AMC Networks. It lasted more than half of 2012. Other blackouts have involved MSG, Fox News Channel/Fox Business Network, and Turner networks.

Last year there were regionally-based blackouts over carriage fees involving CBS Television Stations in major markets, including NewYork City, Los Angeles, and Chicago, as well as HearstTelevision-owned stations in 28 markets.

In many of those past disputes, pricing was the core issue, but this time Dish has maintained that it is about it being forced to carry a minimum number of subscribers — in essence, subsidizing HBO for free to DirecTV customers.

“Programming contracts are complicated, and it’s common for the price that a satellite or cable company pays to depend, to one extent or another, on the number of subscribers,” explained Stephen Blum, principal analyst at Tellus Venture Associates.

“Without knowing the details of the contract, it’s hard to tell whether Dish has a legitimate complaint or not,” he told the E-Commerce Times. “That said, Dish has a history of hardball negotiations with programmers and has let channels go dark in the past when they couldn’t get the deal they wanted at the time.”

Market Consolidation

In this week’s call, Dish’s Ergen underscored his earlier warning that AT&T’s purchase of Time Warner would be anticompetitive for consumers. A reduced number of service providers has given consumers less choice while allowing one service provider to control some of the most desired content.

“At some point, an operator was inevitably going to have a carriage dispute with a Warner network and blame AT&T for anticompetitive behavior,” said Parks Associates’ Sappington.

“The fact that it was Dish, which directly competes in satellite and online services — and so soon after the merger — paints AT&T in a particularly unfavorable light, regardless of the validity of the claim,” he added.

The question is whether Ergen would have had those concerns if AT&T had not insisted on requiring a minimum number of subscribers, suggesting this could be as much theater as a valid concern.

“Dish is trying to bait AT&T into some sort of antitrust claim in order to get better pricing and terms,” suggested Joel Espelein, president of Corum.

“I doubt it will work. The reality is distributors like Dishincreasingly lack any leverage in discussions with content companies like HBO and ESPN that can just go directly to consumers,” Espeleintold the E-Commerce Times

Broken Dishes

This standoff could become the new “business as usual” between a pay-TV service and a content provider, but in the short term, Dish’ssubscribers are the biggest losers. That could turn into a longer-term loss for Dish if those consumers decide to jump to another service — such as AT&T-owned DirecTV.

“The change won’t cripple Dish, but it will be painful in the short term,” suggested Sappington.

However, HBO and its new parent company AT&T can’t be seen as winners either during a blackout.

“In the long run, Dish needs HBO — but HBO needs Dish too,” said Tellus’ Blum.

“Typically, this kind of carriage dispute gets settled,” he added.

“Not having HBO would be a problem for Dish, but losing access to Dishhouseholds is an even bigger problem for HBO, and while ‘cripple’ is a strong word for it, both companies would be hurt if a deal isn’t reached,” explained Blum.

Given that there are now countless ways to get HBO — as well as other services — the blackout could just serve to embolden more viewers to become cord-cutters, and in this regard, Dish has more at stake than HBO/AT&T.

“Dish still needs HBO — that much is obvious, but why does HBO need Dish? Answer — they don’t,” maintained Corum’s Espelein.

As HBO is owned by AT&T, it might soften the blow if consumers should opt simply to cut the cord completely instead of switching providers, but it is doubtful in the long run that AT&T would want to risk hastening the decline of the traditional pay-TV service.

“If the blackout goes on for more than a few weeks, it could have significant consequences for HBO and Dish,” said Blum. “For now, though, it’s business as usual.”