AMC Breaking Bad News for DISH -- but It's Great for Investors

Take heed, DISH Network (Nasdaq: DISH  ) investors: AMC Networks (Nasdaq: AMCX  ) won't be bullied.

Today, the channel will stream -- live -- the premiere of the hit show Breaking Bad to any DISH customer who wants access. AMC also says it will give customers an extra week to "switch providers" in order to get access to its programming.

Bold move. And very, very smart.

AMC and DISH have engaged in a very public battle over financial terms for keeping AMC's channels on DISH's satellite network. AMC wants higher distribution fees; DISH says AMC's ratings don't justify a premium. DirecTV (NYSE: DTV  ) and Viacom (NYSE: VIA-B  ) are embroiled in a similar fight.

To be fair, AMC also says DISH's blackout, which began on July 1, stems from a 2008 lawsuit over the satellite provider's decision to drop an AMC subsidiary from its programming menu. DISH denies that the suit is in any way related to current negotiations.

For investors, what's behind the brouhaha is immaterial. What matters is that AMC is fighting back using the Internet and in the process taking us all a step closer toward transforming television into the very on-demand experience research says we want it to be.

DISH, meanwhile, is left trying to figure out how to justify its own brand of premium pricing for providing channels we don't watch and services we don't use. This form of "bundling," as it's known, is like profit protection for distributors under assault from streaming alternatives.

And that's what makes this power play so interesting. By becoming its own distributor in this one instance, AMC is disrupting the very core of DISH's value proposition. Will that bring executives back to the negotiating table? Maybe. But even if it doesn't, this, right here, should go down as the moment that Hollywood rethought TV distribution.

Or, to put it in terms Breaking Bad fans will appreciate: AMC, not DISH, is the one that knocks.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On July 16, 2012, at 7:03 PM, daveswizard wrote:

    We all know you had a bad experience with Dish so let me argue the other side of this. The "bundling" you speak of is not the fault of the distributors as you seen to imply, but the networks including "must carry" channels which no one watches as part of the agreement to carry the channel people want, which drive up the cost to consumers. This is a way for the networks to justify increased costs by saying we are giving you 8 channels when only 1 of them actually are ever watched.

    Lets take this example. AMC networks has 5 channels they are forcing DISH to buy and carry passing on these costs to the consumer even though only 1 of theses channels is ever watched with any regularity. This must carry bundling by the networks was just upheld by the 9th circuit in Brantley vs NBCUniversal march 30, 2012 forcing the consumer to buy things they don't want.

    You are blaming the distributors when it is the Networks that are forcing the distritutors to carry programming they don't want and the consumers don't want. As an investor I applaud Dish Network and now DirectTV for standing up to the networks at this time as we can all see TV heading toward the direction as you said "taking us all a step closer toward transforming television into the very on-demand experience research says we want it to be."

    So your biased assessment that this is somehow Dish Networks fault when it is AMC's is wrong.

    AMC I believe is cutting their own throat by streaming this show online. They are helping prove the point that people want on demand programming and don't want to be bullied by them into paying for programming they don't want.

    When we are finally freed from the forced bundling by the networks, as it looks like we are heading towards thanks to the internet, there are a lot of channels that are going to die a quick and deserved death. Until then, put your blame where it belongs, on the backs of the Networks.

  • Report this Comment On July 16, 2012, at 9:19 PM, TMFMileHigh wrote:

    @daveswizard,

    >>So your biased assessment that this is somehow Dish Networks fault when it is AMC's is wrong.

    The problem with your argument is that distributors have been bundling just as long as broadcasters, and Dish is no exception.

    >>AMC I believe is cutting their own throat by streaming this show online.

    You're presuming that there's no legitimate substitute for retransmission fees, yet Netflix, YouTube, and iTunes all either already do or have the capacity to pay substantial sums to the likes of AMC for on-demand programming.

    >>I applaud Dish Network and now DirectTV for standing up to the networks at this time as we can all see TV heading toward the direction as you said "taking us all a step closer toward transforming television into the very on-demand experience research says we want it to be."

    You're kidding yourself if you think Dish, DirecTV, or any of their competitors want pure on-demand programming to succeed.

    >>When we are finally freed from the forced bundling by the networks, as it looks like we are heading towards thanks to the internet, there are a lot of channels that are going to die a quick and deserved death. Until then, put your blame where it belongs, on the backs of the Networks.

    You've got it almost right. Both broadcasters *and* distributors bundle. Consumers tend to suffer more at the hands of the latter (i.e., distributors) because they control not only the TV waves but also the majority of access points to the Internet -- the very platform that threatens them:

    http://www.fool.com/investing/general/2012/07/01/3-losers-of...

    In the end, it was AMC -- not Dish -- that took the dramatic step of unbundling just this once for the greater good of consumers and the benefit of the underlying business. Hopefully, the marks the beginning of a broader movement.

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On July 17, 2012, at 4:59 PM, daveswizard wrote:

    "You're kidding yourself if you think Dish, DirecTV, or any of their competitors want pure on-demand programming to succeed."

    While I agree they do not want "pure" on demand programming, with the way the winds are blowing they will have to change their business model, especially the Satelites as they do not have the internet connection revenue, if they want to grow.

    An on demand hybrid would be their best option. They would have set number of channels for a set price but the consumer picks the channels they want. Research has determined that a price of about $1.50 per channel is about what consumers are willing to pay.

    With a set minimum of say 30 channels with each additional $1.50. And of course the Movie channels like HBO continued to be bundled as a group and can be added for a set price for the group.

    The total revenue for the company will take a hit before costs but the net revenue per subscriber will increase. The loser will be the networks who will not automatically collect revenue for all their channels. They will get increased revenue for the desired channels but lose money on the unwanted ones. They will have to decide if keeping a loser up and running will be worth it for the few who will pick it as one of their channels.

    This is why the networks will fight this tooth and nail and is where the real bottleneck will be. They obviously don't want to lose revenue but by allowing internet company's to do A-La-Carte they are pushing the TV industry towards a A-La-Carte business model. Cutting their own throats as I said.

    The distributors will also fight this because as you said they get their current revenue from selling their bundles and their gross revenue will take a hit, but I think the first one to take the initiative when feasible to go a-la-carte will in the end be a winner with new subscribers. We are heading in that direction so they will fight it as long as possible but it will eventually have to be done to survive.

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