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Pay TV mergers needed to offset fees, Dish chief says

By Ryan Nakashima

AP Business Writer

LAST UPDATED: 1:31 p.m. HST, Aug 7, 2013

LOS ANGELES » Dish Network Chairman Charlie Ergen says pay TV distributors may have to merge to even the playing field if the government doesn't curb the power of TV networks in fee disputes.

Ergen made the comments during a conference call with investors Tuesday following Dish's announcement that it posted a second-quarter loss.

His comments came amid the backdrop of a fee dispute that has cut off CBS programming to some 3 million Time Warner Cable subscribers in New York, Los Angeles and Dallas for five days.

Ergen complained about the power of major entertainment companies, calling them "essentially monopolies," because they can raise rates dramatically and distributors have little choice but to pay. He didn't specify which companies he was talking about, but the biggest content providers include Disney, Time Warner and Viacom. He said customers are losing out because programming costs are rising faster than inflation.

"Congress really hasn't done anything to level the playing field," he said. "So, I think that that forces people toward consolidation."

The dispute between CBS Corp. and Time Warner Cable blacked out Showtime, The Movie Channel, Flix and the Smithsonian Channel for Oceanic Time Warner Cable in Hawaii at 11 a.m. Friday.

The blackout was the second to affect Hawaii in recent days, as a similar dispute removed the programming of KGMB-TV, KHNL-TV and KFVE-TV from the DISH Network system at 7:55 p.m. July 31.

Approximately 85 percent of Hawaii television viewers depend on cable for television service, while direct broadcast satellite providers DISH Network and DirecTV split about nine percent of the market. Only about five percent of Hawaii's TV viewers receive programming over-the-air with no monthly subscription.

Meanwhile, the Star-Advertiser reported this week that Hawaiian Telcom.

has more than doubled the number of subscribers to its television service on Oahu to 13,600 households in the past year. It also has expanded the reach of its fiber-optic lines to about one-third of the island's homes.

The basis for all of the disputes is the 1992 Cable Act, which allows TV station owners to either force pay TV operators to carry their signals for free, or bargain for whatever rates they can extract in negotiations. Since then, leverage in such negotiations has shifted in favor of the content owners, who can demand higher fees or pull their signal.

Pay TV groups such as the American Television Alliance say it's time for the law to be updated to offset the negotiating power of programmers.

Ergen also talked up the possibility of a merger with rival DirecTV, a reprisal of an attempt Dish made a decade ago, when the government blocked the deal because it would harm competition.

He said the pay TV marketplace has changed in the last decade, with recent entrants like telecommunications companies AT&T and Verizon gaining subscribers and companies like Intel Corp. preparing to enter the pay TV market with an Internet-delivered service.

"There's new competition coming, whether it'd be from the phone companies themselves or from the Internet that didn't exist before," Ergen said. "So I think the marketplace is probably fairly attractive for consolidation in the video business."

He said a merger might happen between cable TV operators first, which may cause satellite TV operators Dish and DirecTV to examine merging.

In May, John Malone's Liberty Media Corp. took a 27 percent stake in cable TV operator Charter Communications Inc., and since then, speculation has mounted about whether Malone would push Charter to merge with another cable TV operator.

Dish's attempt to buy its way into the wireless phone business with a takeover of Sprint Corp. and its subsidiary Clearwire Corp. failed last month to a rival bid from Japan's SoftBank Corp.

Ergen acknowledged that Dish's foray into the wireless market could be short-lived. He said if Dish puts an end to its wireless phone ambitions and sells its right to use public airwaves, its strategy would be more focused on delivery of video, which would also be more in line with DirecTV's current strategy.

DirecTV CEO Michael White also speculated about a merger with Dish last week on a call with analysts after its earnings release, to address what he called "unsustainable cost increases" imposed by programmers.

White had raised concerns that Dish was more focused on building its wireless business than exploring a merger with DirecTV, saying "it always takes two to dance and frankly, the kind of options you would normally think about are committed on other ideas and strategies."

White had also left the door open for talks with Dish. "You never say never, and we'll be opportunistic when the right moment arrives," he said.

Reporter Erika Engle contributed to this report.

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