Blackouts Symptomatic of Perilous Times for Pay TV

Dish Network and Fox Corporation were able to come to terms last weekend,ending the blackout of Fox owned-and-operated local stations, aswell as FS1, FS2, BTN, Fox Soccer Plus and Fox Deportes. The blackoutof those channels, which began late last month, was notable for its timing. Thefall college and professional seasons had just begun — as well as the newfall season of prime time programming on Fox.

Dish is no stranger to disputes with content providers, and its feudwith AT&T-owned HBO is nearing the one-year mark. The companiesremain at an impasse that shows no signs of breaking.

In the case of the Fox dispute with Dish, there was much more at stake,and the National Football League became involved. That happened because Thursday Night Football is usually simulcast on the NFLNetwork in addition to being aired on the Fox network. The deal to end the blackout hinged on a much broader agreement between the pro football league andFox Broadcasting.

For all intents and purposes the NFL supported Fox, and last weekdeclined to make the simulcast available to Dish or Sling. Thatlikely was enough to bring Fox and Dish back to the table.

Expect More Blackouts

The Dish/Fox showdown is far from the first and likely won’t be thelast such squabble between pay-TV services and content providers. Thispast summer a similar blackout occurred when CBS was removed from the AT&T-owned DirecTV satellite service.

Dish may have resolved its standoff with Fox, but it is still feudingwith former Fox regional sports networks that are owned by SinclairBroadcast Group — and Dish’s blackout of HBO meant it didn’tcarry the recent final season of Game of Thrones.

In addition, Dish, Comcast and DirecTV are still involved in adispute with Altitude Sports which impacts sports fans in theDenver market.

At the heart of the battle are “re-transmission” fees, which pay-TVservices must pay to the broadcast content providers to carry thosechannels — even if the channel is available for free over the air, asin the case of the Fox Network.

Passing the Blame

Whenever blackouts have occurred, both sides have pointed to theother as being the responsible party, but of course the consumer isthe one who is left without a way to see the content.

“This is the defense of Dish in the most recent feud with Fox,” saidGreg Ireland, research director for consumer digital transformationand multiscreen video at IDC.

“However, they are very much damned if they do, damned if they don’t –as content providers are looking for more money, and that could meanhigher prices,” he told the E-Commerce Times.

“One can certainly debate who is playing the victim,” said TammyParker, senior analyst for global telecom consumer services at GlobalData.

“This past weekend in Denver, I heard a radio ad from Altitude, whichproclaimed that Dish, DirecTV and Comcast were intentionally blockingit, and asked sports fans to call their provider and demand thatAltitude be returned to the channel lineup,” she told the E-Commerce Times.

“The ad didn’t mention that Altitude is reportedly demanding to bepaid more for its content, a cost that could be passed down tosubscribers,” Parker noted. “Altitude also issued a press releasetoday that echoes what was said in the ad and asks that sports fans’call for an end to this terrible power play by these threedomineering conglomerates.’ Talk about claiming victimhood!”

The View From the Carriers

The carriers do have a point — especially when it involves localbroadcast stations, which in the 1980s wanted to be carried by cablecompanies. Now instead of asking or demanding to be carried thesestations want to be paid retransmission fees.

At the same time the pay-TV services are dealing with cord cutters andincreasingly “cord nevers” — younger consumers who never subscribed to a traditional pay-TV service in the first place.

“From the perspective of MVPDs (multichannel video programmingdistributors), it’s getting more and more challenging to justifypaying rising content carriage fees as their pay-TV customer basescontinue to shrink,” said Parker.

“With increased competition from over-the-top (OTT) players, it couldbe getting increasingly risky to pass on higher prices to consumers,though admittedly pay-TV operators have gotten away with raisingsubscriptions prices, including adding questionable fees, for manyyears,” she added.

Falling subscriber numbers and new competitive challenges fromdirect-to-consumer streaming products have traditional pay-TVoperators justifiably concerned about their business models.

“It’s not surprising to see them standing more firm than they may havein the past when it comes to carriage renegotiations, especially ifcontent providers are seeking significant fee increases,” saidParker.

“[As Dish CEO] Charlie Ergen noted during Dish’s Q1 2019 earningscall,” she recalled, “‘You can’t have double-digit declines in viewership and have 6percent, 7 percent, 8 percent increases in pricing when customers arewatching less. That’s just not sustainable, and some people are askingfor more increases than that.'”

NFL to the Rescue

In the latest showdown the NFL played a crucial role in getting thetwo sides to the table.

“It is important to recognize that feuds are often resolveddifferently depending on the type of content,” said Dan Cryan,principal analyst for video at MTM London.

The NFL had a lot at stake, and professional football is alreadyfacing backlashes over player injuries, high salaries, andcontroversial statements made by some players. What the league didn’tneed was more controversy, and hence it helped broker a deal.

It is a truly unique situation however.

“Where you have the NFL stepping in to preserve the position offootball is something you don’t see from the Director’s Guild ofAmerica to preserve shows and movies,” Cryan told the E-Commerce Times.

“However, the NFL exists in a mixed economy and the clubs’ income isimpacted if the audience diminishes — which is something differentthan what producers of TV and movies face,” he added.

Live sports is a different beast, of course, because the value isreally only there until the game is over. Prime time programming andmovies can still be seen after the first viewing.

“It is part of a double phenomenon: The first is that live sports arefantastically important for the consumer,” said Crayn. Also, “that the clubs makeadvertising revenue from in-arena sponsorships.”

This is why retaining access to live sports is so important.

One irony is that the cost of those live sporting events is also whatbrought about the feud. The rising costs — from new stadiums toplayer salaries — are passed down, eventually to the consumer.

“Dish is who the consumer is ultimately mad with,” explained IDC’s Ireland.

“The consumer isn’t angry at the programmer or even theactors and producers when the cost of HBO goes up, as it is the serviceprovider who is sending out the bill,” he noted.

“This is where Dish was fighting in essence for the consumer,” saidIreland, “but even then they are running a business — and as WallStreet would argue, the primary responsibility for Dish or any carrieris to its shareholders.”

Lasting Effects

Dish and Fox were able to come to an agreement after just a week andhalf, but its other feuds — notably with Univision — lasted longer, andthe HBO battle is still ongoing. Here is where Dish is stressing that itis fighting those rising costs.

“Dish has long been considered a tough bargainer, but thesustainability aspect is important, as carriage fee negotiations ofteninvolve multiyear contracts,” noted Parker.

“Even if certain price points seemreasonable today, ongoing changes to the linear TV business are suchthat pay-TV providers should be cautious about agreeing to contractsthat might not make as much sense in the near future,” she explained.

Effective PR is necessary to mitigate that damage, which is why Fox andAltitude each launched carefully crafted ad blitzes aimed atconsumers.

Even when an agreement is reached and the various parties are friendsagain, the damage could be lasting.

“Any of these content outages create immediate challenges that aregreater for the pay-TV provider,” said MTM London’s Cryan.

“Charm offensives are par for the course — that it was the other side’sfault — but none of this really matters to the viewer,” he added.

However, viewers can be quick to forget about the feuds once theservice is restored.

“Most blackouts have little negative impact as they are short-term,such as the blackout of Fox on Dish, which lasted less than two weeksbefore the two announced a new multiyear contract today,” said GlobalData’s Parker.

“However, longtime blackouts do end up harming the individual pay-TVservices that are involved because they make those services lesscompetitive and also diminish customer loyalty,” she added. “Dish hasacknowledged that the Univision blackout, which was finally resolved,was ‘painful’ and that it has continued facing headwinds due to notcarrying HBO.”

Could Greater Competition Help?

In the case of the Dish feud with HBO, most subscribers have been ableto get the pay-TV channel via streaming. In fact, today consumers canget video content from a plethora of services, and in most marketsthere is rarely a single option, even for pay-TV services.

“Blackouts harm subscribers if they are locked into long-termcontracts that they cannot get out of,” said Parker.

“Others, however, are usually free to find another provider, and thosein metropolitan areas generally have a choice of pay-TV operators,though customers in rural and remote areas may have limited options,”she noted.

For those in rural markets, blackouts can be far more impactful.

“This is why blackouts do hurt the carriers more,” said PatrickHedger, research fellow at the Competitive Enterprise Institute’s Center for Technology and Innovation.

“Ultimately we want to see an environment where this is better for the consumer, and so people don’t feel like they’re stuck with onecarrier,” he told the E-Commerce Times.

“What we see in these feuds is the testing of the limits by thecarriers and content providers,” said Hedger. “It is up to the consumerto vote with their pocket book.”

Changing Business Strategy

Because of the changing landscape in the way that viewers can getcontent, many of the service providers already are pivotingaway from being a pay-TV service exclusively. Comcast is just as focused on itsbroadband delivery — clearly seeing a future when OTT could replacecable.

AT&T and other carriers have been making similar transitions, and even Dishcould transform from a satellite player to a mobile operator inthe years to come. What is certainly true is that the legacy businessmodel will have to evolve, or else these companies could be one feudaway from losing too many customers.

“Pay-TV is not a particularly good business to be in right now, as wehave content sharing and cord cutting, and streaming is a real gamechanger,” said Ireland. “A lot of these companies exist in amultifaceted environment, and the rising costs are making the corebusiness less attractive.”

Peter Suciu has been an ECT News Network reporter since 2012. His areas of focus include cybersecurity, mobile phones, displays, streaming media, pay TV and autonomous vehicles. He has written and edited for numerous publications and websites, including Newsweek, Wired and FoxNews.com.Email Peter.

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