Why an ESPN Blackout on Dish Could Make Sense

Photograph by Matthew Stockman/Getty Images

Serena Williams appears on the ESPN Game Day on Aug. 17, 2013.

There’s no way we could have another TV blackout just weeks after Time Warner Cable’s month-long dispute with CBS, right?

Right?

While there’s no indication at this point that Dish Network will stop carrying Walt Disney’s ESPN or ABC after their contract runs out on Sept. 30, it may be in Dish’s best interest to push for a public fight.

Another drawn-out dispute between mega-media powers could draw the ire of the U.S. Federal Communications Commission and Congress, which have largely stayed away from fee issues. This could actually be something Dish wants.

“Meaningful retransmission consent reform” is Dish’s best hope for change, Stanton Dodge, Dish’s general counsel, said on the company’s earnings call last month. Reform would alter rules that allow broadcasters to charge fees for their programming in a similar way to how cable networks ask for affiliate fees. Retransmission fees paid by pay-TV providers are estimated to top $3 billion this year and $4 billion in 2015, according to market researcher SNL Kagan.

New rules could allow pay-TV providers to get broadcast signals for less money or potentially even for free. In fact, Americans can still watch broadcast channels for free today using an antenna. It’s just the digital signal, bundled with cable networks, that warrant retransmission fees. CBS will get about $2 per subscriber each month under its new contract with Time Warner Cable, according to an estimate from Jessica Reif Cohen, an analyst at Bank of America Merrill Lynch.

Disney’s ESPN charges pay-TV providers a whopping $5.54 per subscriber per month, according to SNL Kagan. For context, NFL Network, the second-most-expensive national channel, charges $1.34. A lower-rated channel such as Disney Junior fetches 17 cents.

Rep. Anna Eshoo, a Democrat from California, introduced draft legislation today called the Video CHOICE (Consumers Have Options in Choosing Entertainment) Act. The bill is intended to eliminate TV blackouts and calls for an FCC study of sports programming costs. Dodge is set to testify this week before the U.S. House Energy Subcommittee on Communications and Technology, where he’ll probably make several more arguments for reform.

Attention from lawmakers and regulators on increased programming fees could also help sell a Dish-DirecTV merger down the road. Dish CEO Joe Clayton has said that putting Dish and DirecTV together “makes a lot of sense,” in part “because the programming partners have gotten so powerful that their rates are going up at four, five times the rate of inflation.”

Dish and DirecTV together would probably have more power to negotiate lower programming costs with both broadcast and cable networks that would want to access their combined 34 million customers in the U.S. Networks may think twice before losing such a big audience — and the fee and advertising revenue that come with it.

Dropping ESPN and other Disney channels, including ABC affiliates in several major markets, would be a risky bet. Dish could lose many subscribers and upset even more. Then again, Dish Chairman Charlie Ergen used to be a professional gambler.

“Somebody, sometime may decide that sports isn’t something they have to have,” Ergen said on the earnings call last month. “And then while they lose customers initially, they will gain customers long-term.”

Could Dish be that company? We should find out by the end of the month.

What do you think about this article? Comment below!