Death, taxes and higher pay-TV bills are certainties of modern life. But the escalating cost of TV programming has been hitting a breaking point for consumers — and now it’s landing acutely on wholesalers.
On Oct. 1, midsize cable operator Suddenlink Communications dropped Viacom’s suite of 24 cable channels, including MTV, Comedy Central and Nickelodeon. The MSO, which has 1.2 million video subscribers, cited the media conglom’s fee hikes for the action, and insists it doesn’t expect to bring back the channels anytime soon.
Now Dish’s Charlie Ergen is crossing swords with Turner Broadcasting, claiming the satellite company is willing to leave its 14 million subscribers without TNT, TBS and CNN if it can’t get an acceptable deal. In another ongoing spat, DirecTV is threatening to drop AMC.
The Dish-Turner dispute flared up Oct. 21, when CNN, Cartoon Network and six other networks went dark on the satellite operator without warning. Dish may also lose TNT and TBS later this month, Ergen told investors on the company’s third-quarter earnings call.
“When we take something down, we’re prepared as a company to leave it down forever,” the Dish chairman said. Losing TNT and TBS “will be more painful” than the loss of CNN and the other smaller networks, and likely prompt subscriber defections, he conceded. But, Ergen said, “we have a responsibility to our shareholders not to do stupid deals.”
Added Ergen: “The industry is changing.”
That much is true. But the television industry has a long and gory history of clashes between content providers and distributors, replete with charged rhetoric. Still, if Dish or other distribs do call the media companies’ bluff and permanently cut channels, it could quickly fracture the pay-TV edifice.
The notoriously pugnacious Ergen might simply be angling for leverage to cut a better deal with Turner, including extracting terms to include the cabler’s networks in its forthcoming over-the-top Internet TV service, slated to launch later this year. It’s a take-it-or-leave-it tactic Ergen has used before: Last year, he claimed Dish was prepped to walk away from Disney and ESPN amid contentious contract negotiations — before the companies reached a deal this spring that encompasses OTT rights.
Turner CEO John Martin expressed bewilderment at Ergen’s “antagonistic and aggressive” talk. “We honestly have no idea what Dish was talking about,” Martin said on Time Warner’s quarterly call last week. According to Turner, the sides had come to terms on rates weeks ago, and had agreed on key points for the Dish over-the-top product.
Clearly, Turner was blindsided by the satcaster’s stance. “It’s weird,” said analyst Michael Nathanson. “Time Warner always suggested they were close to a deal (with Dish), then this blows up. This one doesn’t feel like it was telegraphed to be a problem.”
Ultimately, analysts think the war of words is just typical gamesmanship, and that Dish and Turner will eventually kiss and make up.
“It’s more of the same,” noted Forrester Research analyst James McQuivey. Satellite operators are the most vulnerable distributors because of their heavy reliance on TV, and have the greatest incentive to push back on Turner and others, he said. But at the same time, he added, Dish and DirecTV stand to shoot themselves in the foot in the near term if they drop popular channels, because that would fuel further subscriber losses.
Seeing the writing on the wall, DirecTV has agreed to be acquired by AT&T (a deal pending regulatory review). The combo would produce an entity that can drive harder bargains with programmers: AT&T, for example, expects the addition of DirecTV’s sub base to reduce programming costs by 20% or more.
The friction between TV networks and their affiliates only promises to increase, as the industry continues to shrink.
Among the next powder kegs: Dish’s carriage agreement with CBS is set to expire in late November. Ergen, on the call last week, said he was hopeful Dish would reach a renewal with the Eye. He also called out CBS All Access, the recently launched $5.99 monthly OTT service that provides access to 14 live streams of local stations, current primetime shows and older content. “On the one hand, that’s an interesting business plan,” Ergen said. “On the other hand, it makes that product less interesting for (pay-TV providers) because customers have a choice to get it somewhere else.”
Dish’s saber-rattling is not a totally empty threat. The satcaster has dropped several regional sports networks in recent years, including, most recently, Boston Celtics distrib Comcast SportsNet New England this August, as sports captures an outsize pricetag in the overall bundle. But so far, Dish has not taken the scorched-earth step of cutting out a major national cable programming group.
It’s possible that the permanent (or, perhaps, semi-permanent) blackouts in the pay-TV industry to date are outliers. Suddenlink’s spurning of Viacom is driven by economic pressures on the heartland MSO, given that the operator doesn’t have the same clout as, say, Comcast, to obtain better terms. The biggest pay-TV providers in the biz still stand to lose more than they could gain if they pull the trigger and start blowing up the bundle. But there’s a first time for everything. “TV has always been a complicated, contentious business,” McQuivey said. “As digital disrupts that business, it only amps up the complexity and the contention.”