HBO's first-ever blackout with a pay-TV distributor surfaces as DoJ tries to block AT&T-Time Warner merger.

Jeff Baumgartner, Senior Editor

November 2, 2018

5 Min Read
Dish-HBO Carriage Spat Could Have Big Carryover

The battle between Dish Network and HBO is not your ordinary programming carriage dispute.

For starters, this spat, which also includes Dish Network LLC (Nasdaq: DISH)-owned Sling TV , marks the first time the premium network and Game of Thrones purveyor (along with sister network Cinemax) has ever been blacked out by a pay-TV distributor. And that's saying something -- HBO's been around for more than four decades, from bringing the world the Pennsylvania Polka Festival in 1973 to producing series and shows like Fraggle Rock, Not Necessarily The News, The Sopranos and on and on.

But the bigger implication is that this is all taking place a few months after AT&T Inc. (NYSE: T) wrapped up its acquisition of HBO's parent company, Time Warner Inc., and now has the U.S. Department of Justice breathing down its neck trying to block it over concerns that the deal will lead to higher programming prices for consumers. (See FCC Gives DoJ a Boost in Appeal Against AT&T-Time Warner Merger, DOJ Says Judge Erred in AT&T-Time Warner Merger Appeal and The US DOJ May Be Appealing the AT&T-Time Warner Merger Trial.)

Timing being everything, having AT&T at the helm the first time HBO has been blacked out just isn't a good look and certainly doesn't help its case.

So, it's no surprise that Dish, which was opposed to the AT&T-Time Warner deal from the start, seized on that angle.

Dish claims that AT&T made "untenable demands," including one that Dish pay for a guaranteed number of subscribers no matter how many want to take the premium service. About 2.5 million of Dish's 13 million subs, including Sling TV customers, get HBO, according to the Los Angeles Times.

HBO sees it differently, telling the paper that it's Dish that's being unreasonable and is using this battle, and the timing of it, as a negotiating tactic to help it trim costs. "They didn't want to engage. It was not a serious negotiation," Simon Sutton, HBO's president and chief revenue officer, told the LA Times, adding that HBO was actually offering better terms than the three-year contract that just expired.

Back to the Time Warner/AT&T deal, Dish likewise argues there were no guidelines put on the merger to ensure that AT&T "played fair" for HBO and Cinemax subs, "regardless of their pay-TV provider."

"Plain and simple, the merger created for AT&T immense power over consumers," Andy LeCuyer, Dish's senior vice president of programming, said in a statement, believing that more, similar blackouts are coming.

While blackouts of the past usually meant a consumer could go to another pay-TV provider -- an MSO, telco or another satellite TV provider -- to fill the gap, virtual MVPDs and OTT-fueled direct-to-consumer services from individual programming services have given consumers more options and, seemingly, given programmers more negotiating leverage. HBO has its own service, HBO Now, and is also available on other outlets, including through Amazon Channels and via AT&T's own DirecTV Now service. And some promos are tossing in HBO as a perk.

Dish pressed the OTT argument, believing that the blackout will have an "exceptionally harmful" effect on rural Americans that don't have access to the same quality of broadband as those who live in large cities. On that point, Dish held that the majority of its HBO customer base is located in rural areas with "limited broadband access."

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The OTT era has also altered the pay-TV market, Dish said, holding that HBO Now, at $15 per month, has "set the market price" and is now looking to "extract money a different way."

In a note issued today, MoffettNathanson LLC analyst Craig Moffett said he believes that the current dispute "hinges on HBO's minimum distribution thresholds," estimating that Dish has only about 20% HBO penetration, versus about 30% among other MVPDs. But Dish, he points out, is wondering why it should pay full price for HBO, or spend money marketing it, when it's being given away to competitors' wireless and satellite TV consumers.

The added "wrinkle" is that AT&T "is claiming that Dish is collaborating here with the DoJ," Moffett writes.

"The Department of Justice collaborated closely with Dish in its unsuccessful lawsuit to block our merger," WarnerMedia said in a statement to media outlets. "That collaboration continues to this day with Dish's tactical decision to drop HBO -- not the other way around. DOJ failed to prove its claims about HBO at trial and then abandoned them on appeal."

Dish's recommendation is to conduct "binding, baseball-style arbitration" to determine the fair market value of HBO and Cinemax, and wants AT&T to restore the channels during that process.

What's not so new is that Dish is going to the mat with a programmer over a carriage dispute, though others have generally involved programmers with a local TV broadcast angle. One such example is the protracted battle that Dish has had with Univision, with Dish chief Charlie Ergen seemingly unwilling to budge.

"I believe this one, personally, is probably permanent," he said of the Univision situation in August during the company's Q2 call.

Moffett contends that these blackouts seem to signal that Dish doesn't care much about the video business anymore. And that's a bizarre thing to think about -- Dish's primary business is video, even as it attempts to move forward with other pursuits in the areas of wireless, IoT and 5G. (See Dish's Window to Sell Spectrum Has Closed, Analyst Says and Dish: We Can Meet Wireless Buildout Schedule.)

But it's also another indictment of the traditional pay-TV model. "It's not just that individual pieces of programming don't make sense," Moffett writes. "It’s that the economics of the whole bundle don't make sense.

— Jeff Baumgartner, Senior Editor, Light Reading

About the Author(s)

Jeff Baumgartner

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.

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