As the CBS blackout on Time Warner Cable appears to be heading into a second week, a big contract dispute may be brewing between Dish Network and Disney/ABC and ESPN — and it could be every bit as contentious.
Dish’s agreement with Disney for ESPN, other cable nets and ABC-owned stations, reached way back in 2005, is set to expire Sept. 30, 2013.
Charlie Ergen, Dish’s notoriously combative founder and chairman, said the satcaster is prepared to drop ESPN and other Disney networks if the companies can’t reach a deal.
“We’ll work first and foremost to find a deal with Disney that makes sense for our customers,” Ergen said on the company’s earnings call this week. “If we get that deal, we’ll do it. If we don’t get that deal, we’ll part ways — simple as that.”
ESPN and ABC declined to comment.
Ergen’s comments could be just so much saber-rattling, as Dish enters an intense period of negotiations with the media conglom.
But Dish has a history of public feuds and litigation with companies. The operator also has pulled back on sports programming to cut costs, dropping several regional sports networks across the U.S., including the three in the New York market (MSG, YES Network and SNY).
And Ergen has fought ESPN before: Dish sued ESPN in 2009 for violating a “most-favored-nation clause” in their pact that guarantees that ESPN extend the same terms to Dish offers to competitors; that was spurred by an ESPN deal with Comcast, which Dish argued gave the cable operator more flexible packaging options. In March, a federal jury awarded Dish $4.85 million in damages, whereas it had been seeking $153 million.
Meanwhile, ABC is party to a lawsuit broadcasters filed against Dish over the satcaster’s Hopper DVR AutoHop ad-skipping feature. Ergen has maintained that the suit does not have any bearing on carriage negotiations.
On the call with Wall Street analysts Tuesday, Ergen made a case for how a pay TV operator might actually benefit in the long run by dropping ESPN.
“Disney’s not going to go out of business without the Dish Network and vice versa,” Ergen said. “If you take a really long-term view of it, somebody sometime may decide that sports isn’t something they have to have. And therefore, they can have a materially lower price for customers. And while they’ll lose customers initially, they will gain customers long term, they’ll be back in a growth pattern for gaining customers.”
Ergen continued, “There could be a day when strategically, companies just can’t get together, where they go opposite directions and they both have strategies that work for them, and we’re prepared to go either way.”
Dropping ESPN — the most expensive cabler in the biz — has been viewed as a suicidal move for pay TV operators. The last serious stand against ESPN was mounted in 2003 by Cox Communications, which threatened to drop the net over fee hikes it said were increasing 20% per year. (Cox and ESPN clinched nine-year pact in 2004, while the operator and Disney/ESPN agreed on a renewal last December without any public drama.)
In 2012, ESPN earned average monthly fees of $5.71 per subscriber for ESPN and ESPN2 combined, according to SNL Kagan.
According to filings in Dish’s suit against ESPN, under the 2005 pact the satcaster initially paid $3.26 per subscriber per month for ESPN, with those increasing 5% to 7% annually. ESPN will certainly be seeking a much higher per-sub fee, particularly with its $15 billion NFL rights deal for “Monday Night Football” kicking in with the 2014-15 football season. The WatchESPN service for mobile and PC access to live events, which Dish does not currently offer, also would drive up the price tag.
Separately, Dish is now in the eighth day of a retransmission-consent standoff with Raycom Media, which has resulted in blackouts of 53 stations in 36 markets across the U.S. Raycom says it is asking for same payments it receives from other operators, while Dish claims the station group is seeking a fourfold increase in fees.
On Friday, Dish issued a call for Congress to update local TV carriage rules. “The impact of these tactics on consumers should be the focus of retransmission reform in Washington,” R. Stanton Dodge, Dish exec veep and general counsel, said in a statement. “The outdated carriage rules have resulted in an historic number of blackouts with millions of subscribers impacted. It is time for reform.”
Dish ended the second quarter with 14.014 million subscribers, down 47,000 versus 14.061 million in the year-earlier period.