Dish Network Corp. (MM) (NASDAQ:DISH)
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Dish Network Corp. (DISH), faced with several lawsuits and an increasingly tenuous relationship with its TV programming partners, appears unlikely to pursue a compromise with broadcasters over its new ad-skipping technology.
"The damage has been done at broadcasters' bequest. They are making plenty of money," said David Shull, Dish's senior vice president for programming. He suggested the TV networks' threat of higher retransmission fees won't deter efforts to roll out Dish's new "Hopper" service, which allows users to skip commercials at the touch of a button and threatens a key revenue stream for broadcasters.
The combative stance by Dish highlights the tension between TV programmers and distributors, who have seen their profit margins undercut in past years by continually rising retransmission and programming fees they pay broadcasters to carry show content.
Shull said broadcasters have already levied triple-digit percentage increases in annual retransmission fees over the past two years; during a time when they also have sought out lucrative distribution deals with the likes of Hulu and Apple Inc. (AAPL) that undermine the pay-TV businesses model.
"Customers shouldn't pay for massive increases in retransmission fees when the content is out there more widely," Shull said.
Hulu is owned by a consortium of investors including News Corp. (NWS, NWSA); which owns this newswire and Fox Broadcasting.
Spokesmen for CBS Corp. (CBS) and Fox declined to respond to Shull's comments for this article. Spokeswomen from Walt Disney Co.'s (DIS) ABC and Comcast Corp.'s (CMCSA, CMCSK) NBC Universal weren't immediately available.
Broadcasters have warned they could rewrite retransmission agreements or blackout channels for Dish subscribers in order to account for the reduced advertising reach due to Hoppers. Dish is the country's third-largest pay-TV operator in the U.S., with around 14 million subscribers.
In addition, three of the broadcasters--Fox, NBC and CBS--filed lawsuits against Dish in federal district court in central California, accusing it of violating copyright and licensing agreements through services offered on the Hopper.
Before the broadcasters' suits, Dish preemptively sued the four networks as a way of "clarifying our position" that the service wasn't illegal, Shull said. "We felt the timing was appropriate," he said. Dish has requested a "declaratory judgment" that its new ad-skipping feature doesn't infringe copyright law.
Shull noted that the ad-skipping technology makes up only one service included in the Hopper device, which it is advertising aggressively in an effort to gain market share. He also downplayed the impact of "Auto Hop" technology on commercial viewing, explaining that viewers have to go through several steps to launch the service on their TVs.
"I think they are over-reacting," he said. "It's not really that much different from an advertising perspective." Shull said he had "good conversations" with broadcasters on the Hopper during visits to New York and last week's Cable Show industry conference in Boston, before the filing of lawsuits last Thursday.
Observers have questioned Dish's decision to aggressively confront broadcasters, in a move they attributed to Dish Chairman Charlie Ergen's reputation as an industry maverick as much as to the company's efforts to gain new business.
"I'm surprised Dish is being so shortsighted," said Steve Herz, founder of broadcast consulting firm IF Management. "They might benefit in the short term, but it just kills the golden goose that lays eggs in the form of programming."
Elsewhere, broadcasters are suing TV-startup Aereo Inc., in a case that starts Wednesday in New York, on allegations that its Internet-streaming TV service violates copyright laws. Aereo's business plan doesn't foresee it paying retransmission fees to broadcasters.
Bernstein analyst Craig Moffett was more broadly skeptical of efforts by the likes of Dish and Aereo to shake-up the traditional TV business.
"From where I sit, their odds don't look great. The existing system is proving a lot harder to overturn than anyone originally envisioned," Moffett said.
-By William Launder, Dow Jones Newswires; 212-416-3412; email@example.com