Disney deal blazes trail for a Dish without the dish

<b>analysis</b> Dish Network's deal with Disney sacrifices AutoHop, but it does more than just keep ESPN and gain access to more mobile-video apps: It slings Dish into the lead for full-on Web TV.

Joan E. Solsman Former Senior Reporter
Joan E. Solsman was CNET's senior media reporter, covering the intersection of entertainment and technology. She's reported from locations spanning from Disneyland to Serbian refugee camps, and she previously wrote for Dow Jones Newswires and The Wall Street Journal. She bikes to get almost everywhere and has been doored only once.
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Joan E. Solsman
7 min read

Dish Network

Dish Network just took the lead in turning Internet TV into reality.

Long have the biggest names in technology -- Apple, Google, Sony -- aspired to elevate tech's courtship of television to full-blown marriage: a multichannel television service, giving you the most popular networks of your cable provider but delivering them over the Internet.

And long has it been a story of unrequited love. No company has yet to make major, public, legitimate strides toward that goal, relegating them instead to grand proclamations of intent or sidelong glances at their hearts' desire.

That changed late Monday, as Charlie Ergen's satellite television provider unveiled a deal with the Walt Disney Co., owner of such networks as ABC and ESPN. Out of a routine contract negotiation, the kind that regularly crops up for every network owner and every pay-TV operator, Dish sacrificed the purity of its AutoHop ad-skipping feature to keep up its access to Disney channels, to expand customers' access to mobile app video, and -- most importantly -- to give Dish the right to stream video, live and on demand, as part of an Internet-delivered television service.

It makes Dish the first company to publicly seal the kind of content deal that's essential for Internet TV. Not only that, it netted the most important network for live-TV demand: the king of live sports, ESPN.

The rest of the field
Google, Apple, Intel and Sony all either have worked or are working on new forms of TV service to deliver content via the Internet. None of them have made public headway.

Speculation about Apple's TV plans stretch back half a decade, but despite Steve Jobs and Tim Cook's stated passion for creating a revolutionary device for the living room, the extent of Apple's progress has been minor updates to the Apple TV set-top box. Amazon explored the idea of licensing live channels but isn't pursuing it now. Google is said to be the latest pushing for streaming deals, but hasn't made any public acknowledgement of the pursuit. Sony said at January's Consumer Electronics Show in Las Vegas that it would begin to pilot a cloud-based TV service this year that combines live television content with on-demand and DVR, but it has sketched out only scant details of the venture.

Read: Internet pay-TV is coming. Will you care?

The company to come closest so far was Intel, but then earlier this year it agreed to sell its Web-based TV product to Verizon Communications after failing to get it to market, despite promises it would go live last year. The company was close to securing content deals in the same ballpark as Dish's with Disney, CNET reported, but it never got as far as finalizing them before its chief executive started considering buyers instead.

Why has the pursuit of a Web TV service has been such a long slog for these companies, with few public victories? In many cases, management simply devoted attention to other efforts first: Apple has focused on proliferating mobile devices for the last several years to great success, and Intel's new CEO decided to regroup the company around its chip business, as examples.

But in all these cases, the companies have yet to show they can clear the most important bar to making Web TV come to be: bringing the content creators on board.

The price Dish paid
Like anyone working toward a closer relationship, Dish needed to compromise. Financial terms of its deal with Disney weren't disclosed, but part of the price Dish is paying is AutoHop.

Dish's mascot, Hopper
Dish's human-size Hopper, the mascot for its DVR. Roger Cheng/CNET

The AutoHop feature of Dish's Hopper remote DVR lets customers automatically jump over commercials on prime-time broadcast television recordings with a simple remote click, in contrast with typical DVRs that require viewers to fast-forward through ads manually at every break. Networks have vilified AutoHop and sued Dish repeatedly, saying it threatens to destroy the advertising system that supports their content and that Dish doesn't have the right to tamper with advertising from broadcast replays for its own economic advantage. (Disclosure: CNET is owned by CBS, which is one of the networks suing Dish over Hopper.)

Dish has extolled AutoHop as simply giving consumers what they want and as something essential to the evolution of television, an inevitability as TV increases its tech enhancements that let people watch what they want -- and only what they want -- anywhere and anytime.

Ergen, however, is a poker player through and through, and AutoHop is an example of knowing your hand and playing it to your advantage.

There's little doubt AutoHop is also a tool to increase Dish's leverage against broadcasters. Pay-TV distributors have been struggling to strengthen their negotiating position with programmers of all stripes, who have ratcheted up the cost for distribution systems to keep their channels and expand the systems' access to content online. No category of programmer has been more aggressive in this arena than the broadcasters, who not only benefit from being the most-watched channels on television but also enjoy what's known as the retransmission consent framework to create massive new fees. These retransmission fees didn't exist a few years ago, but they've grown to an estimated $3.3 billion last year and may be worth more than $7 billion a few years from now.

Charlie Ergen Dish

And that provoked one of the biggest deals in years. Improving its bargaining position when negotiating programming fees is one of the reasons the country's biggest cable operator, Comcast, wants to merge with the second biggest, Time Warner Cable.

AutoHop attacks prime-time advertising, the one thing that makes broadcast networks most lucrative. That AutoHop only works for broadcast networks and not cable ones is a tactical choice, not a technological reality.

When Dish rolled out AutoHop in 2012, it was a gambit aimed at getting the companies that own broadcast networks -- Walt Disney's ABC, CBS's namesake network, 21st Century Fox's Fox and Comcast's NBC -- to play ball on more than just fee increases.

Monday, that gambit worked. By agreeing to shut down the AutoHop capability on ABC programs for the three days after they air, Dish won the rights to Internet-based television that nobody else has touched yet.

The Disney deal also shows that Dish has turned the programmer strategy of "bundling" on its head. Like CBS, 21st Century Fox, Comcast and a host of other media companies, Disney has used a beloved strategy of bundling its most popular networks with smaller ones. For distributors to get ABC and ESPN, they must also take ABC Family.

Programmers did this to expand the real estate for generating ad revenue. One network has only 24 hours to cram in as many ads as possible, and so the only way to expand that square footage is to add more channels. It's the primary reason that your pay-TV subscription costs so much to be chock-full of channels you don't watch -- and that you can't simply pay for only the ones you want.

For Dish, however, bundling means its weapon against the broadcasters gives it leverage to get a host of other channels on an Internet-based television product. Comcast owns not only NBC but also Bravo, and CBS and Fox own their broadcast networks as well as Showtime and FX, respectively.

A template for Dish without the dish
In a way, Dish already has Internet TV, in the form of its Dish World offering. Dish World is a subscription add-on that lets customers stream international shows without a dish, simply by pulling up the programs on the Internet. Customers could also watch the shows on Internet-connected TVs or through set-top boxes like Roku.

A Dish Network dish that provides satellite Internet. Dish Network

In addition, other distributors have inched toward something resembling Internet TV with more public success than technology companies. Comcast, which operates the country's No. 1 cable company in addition to owning programmer NBCUniversal, rolled out AnyPlay in 2012, letting subscribers to both video and broadband service watch live TV on tablets in select markets. And its Xfinity On Campus Internet-based service to delivers live TV and thousands of on-demand shows and movies to the computers of students living in on-campus housing of certain colleges.

But those are a far cry from a multichannel Internet-based offering for people who don't otherwise pay for a video service.

To be sure, Dish is still a far cry from that too. Saying such an Internet-TV service would be Dish without a satellite dish elides the fact that subscribers would still need a dish for their Internet access at home. And a multichannel Internet TV service needs -- well -- other channels. Though Disney owns a big broadcast network and an important cable offering in ESPN, as well networks that appeal to kids and families, Dish will need to get other programmers on board.

A Dish representative said late Monday that the framework of a more generalized Dish Internet TV service would be similar to Dish World, and that Dish has talked to other programmers about it.

Luckily for Dish, the television industry is highly concentrated -- nine companies create about 90 percent of television programming. And four of the biggest have been trying and failing to shut AutoHop down.

Scratch that, make that three of the biggest. And Dish couldn't be happier.