Blackouts Symptomatic of Perilous Times for Pay TV | Entertainment

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

Dish is no stranger to disputes with content providers, and its feud
with AT&T-owned HBO is nearing the one-year mark. The companies
remain 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 NFL
Network 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 and
Fox Broadcasting.

For all intents and purposes the NFL supported Fox, and last week
declined to make the simulcast available to Dish or Sling. That
likely 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 the
last such squabble between pay-TV services and content providers. This
past 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 feuding
with former Fox regional sports networks that are owned by Sinclair
Broadcast Group — and Dish’s blackout of HBO meant it didn’t
carry the recent final season of Game of Thrones.

In addition, Dish, Comcast and DirecTV are still involved in a
dispute with Altitude Sports – which impacts sports fans in the
Denver market.

At the heart of the battle are “re-transmission” fees, which pay-TV
services must pay to the broadcast content providers to carry those
channels — even if the channel is available for free over the air, as
in the case of the Fox Network.

Passing the Blame

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

“This is the defense of Dish in the most recent feud with Fox,” said
Greg Ireland, research director for consumer digital transformation
and 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 mean
higher prices,” he told the E-Commerce Times.

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

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

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

The View From the Carriers

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

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

“From the perspective of MVPDs (multichannel video programming
distributors), it’s getting more and more challenging to justify
paying rising content carriage fees as their pay-TV customer bases
continue to shrink,” said Parker.

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

Falling subscriber numbers and new competitive challenges from
direct-to-consumer streaming products have traditional pay-TV
operators justifiably concerned about their business models.

“It’s not surprising to see them standing more firm than they may have
in the past when it comes to carriage renegotiations, especially if
content providers are seeking significant fee increases,” said

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

NFL to the Rescue

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

“It is important to recognize that feuds are often resolved
differently 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 already
facing backlashes over player injuries, high salaries, and
controversial statements made by some players. What the league didn’t
need 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 of
football is something you don’t see from the Director’s Guild of
America to preserve shows and movies,” Cryan told the E-Commerce Times.

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

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

“It is part of a double phenomenon: The first is that live sports are
fantastically important for the consumer,” said Crayn. Also, “that the clubs make
advertising 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 what
brought about the feud. The rising costs — from new stadiums to
player 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 the
actors and producers when the cost of HBO goes up, as it is the service
provider who is sending out the bill,” he noted.

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

Lasting Effects

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

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

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

Effective PR is necessary to mitigate that damage, which is why Fox and
Altitude each launched carefully crafted ad blitzes aimed at

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

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

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

However, viewers can be quick to forget about the feuds once the
service 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 weeks
before the two announced a new multiyear contract today,” said Global
Data’s Parker.

“However, longtime blackouts do end up harming the individual pay-TV
services that are involved because they make those services less
competitive and also diminish customer loyalty,” she added. “Dish has
acknowledged that the Univision blackout, which was finally resolved,
was ‘painful’ and that it has continued facing headwinds due to not
carrying HBO.”

Could Greater Competition Help?

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

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

“Others, however, are usually free to find another provider, and those
in 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 Patrick
Hedge, 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 one
carrier,” he told the E-Commerce Times.

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

Changing Business Strategy

Because of the changing landscape in the way that viewers can get
content, many of the service providers already are pivoting
away from being a pay-TV service exclusively. Comcast is just as focused on its
broadband delivery — clearly seeing a future when OTT could replace

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

“Pay-TV is not a particularly good business to be in right now, as we
have content sharing and cord cutting, and streaming is a real game
changer,” said Ireland. “A lot of these companies exist in a
multifaceted environment, and the rising costs are making the core
business 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
Email Peter.

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