What a la Carte Cable Has to Do With the Dish Network-Turner Broadcasting Dispute

Dish Network (DISH) customers looking for Anderson Cooper or Adventure Time this week are out of luck. The satellite TV provider blacked out CNN and Cartoon Network after it failed to come to terms with Time Warner's (TWX) Turner Broadcasting unit. Negotiations are still ongoing, but the main sticking point is the same as always: Time Warner wants more money, and Dish doesn't want to pay.

Complicating matters somewhat is the sudden rise of over-the-top streaming services. Time Warner announced last week that it plans to sell HBO directly to consumers, bypassing pay-TV operators like Dish. Dish Network itself plans to roll out a low-cost personal streaming service -- which may be part of what's holding up negotiations. Indeed, a la carte services like HBO-Go-It-Alone have more to do with cable bundle negotiations than you might think.

What's the big hold up?
The primary sticking point in negotiations appears to be issues related to CNN's carriage fee, digital rights, and contract length. Those digital rights likely have to do with Dish's planned personal streaming service. Each of Dish's previous deals for digital rights came as part of a contract extension for its satellite service -- Disney, A&E, and Scripps.

CNN's ratings have declined significantly recently. Look at the following table to see how bad it's been.

Source: Media Bistro

If you put it in perspective, however, CNN is simply part of a decline in cable news viewership overall. In the second quarter, it leapfrogged MSNBC to become the second most popular cable news network.

So what does this have to do with a la carte cable? The point is CNN is too valuable to Dish -- even if its ratings are declining -- for Dish to say it doesn't need the network in its bundle. Time Warner has the infrastructure in place (with its HBO Go-It-Alone plans) to go over-the-top with CNN, and there's a strong niche market of viewers who would pay for it.

What's more, CNN is exactly the type of network most suited for a streaming service -- either a la carte or through Dish's planned bundle. When news breaks, people are usually out and about. Getting to a television isn't always easy, so a streaming service is perfect. That means Turner is in a position to ask for more from Dish for the digital rights to its CNN content.

It only takes a threat
HBO Go-It-Alone isn't about making more money from consumers. Sure, Time Warner might make a few hundred million dollars from the service (or not), but the real advantage of going direct-to-consumer is the leverage it gives Time Warner over pay-TV operators.

As Peter Kafka at Re/Code points out, HBO CEO Richard Plepler told the audience at an investors conference last week, "Just the threat of going [over the top] gives us added leverage." Going over-the-top will help HBO achieve better revenue splits with pay-TV operators for its premium cable network by threatening to cut them out completely.

The same applies to CNN, or any other network with a relatively devoted audience. They don't actually have to go over the top of the pay-TV operators, just show that they are willing to do so.

CBS (PARA -3.94%) made waves last week when it showed more than a willingness to go over-the-top, actually launching a fully functioning streaming service. Its contract with Dish Network expires soon, and the two companies have yet to reach a contract extension. CBS is using its service as leverage even though it just launched.

A la carte television is bad for consumers
If you think you'll pay less than your current cable bill by cutting the cord and subscribing to a few over-the-top services, the CBS announcement was probably a rude awakening. CBS is charging subscribers $6 per month for a channel they could otherwise get free with some rabbit ears.

The reason the price is so high is because a la carte television isn't for consumers. It's for the content companies to use against pay-TV operators. That's what we're seeing right now with the dispute between Dish Network and Turner Broadcasting.