There's a war on for your television. You might not know it, but DISH Network (NASDAQ:DISH) aims to transform the traditional pay-TV system. The company has plenty of work ahead, but if it gets its way, Americans could have the best option to date for pay-TV services -- and one of the cheapest.
The revolution will be televised
Since spring, DISH has been rumored to be working on an over-the-top online television streaming service that costs $20 to $30 per month. DISH's idea is to offer a smaller number of popular channels (you know, that ones people actually watch) that stream from the Internet to mobile and connected devices, without the need for a traditional pay-TV service.
According to Variety, DISH has already signed content deals with Disney (NYSE:DIS), A&E, and Scripps Networks (HGTV, Food Network). The deal with Disney is of particular interest because it includes not just popular networks such as ABC and the Disney Channel, but also ESPN and ESPN 2.
Live sports are a driving force behind America's rising cable bills, and ESPN leads the charge. Content makers receive monthly fees for each subscriber who signs up for cable or satellite TV. ESPN charges the most compared to any other channel: $6.04 per subscriber every month.
DISH hopes snag subscribers who don't have a pay-TV service, and to tap into the rising over-the-top, or OTT, TV trend.
The rising cost of cable
In 2013, the number of cable subscribers dropped for the first time ever, down by almost 250,000 for the full year . At the same time, 5 million Americans signed up for OTT services last year. The media research firm Magna Global expects that number to increase a whopping 220% by 2018.
That's due, at least in part, to the rising cost of cable. Right now the pay-TV industry is worth $193 billion, and the average revenue per user, or ARPU, is about $85.80. Coming in at $30 or less, DISH's new service could truly shake up the high ARPU cable companies currently enjoy.
Why this could be a real game changer
Consumers already have their pick of free or inexpensive online streaming services from Netflix, Amazon.com Prime, Hulu, and others. But for sporting events and other live programming, viewers typically have to shell out hefty sums each month for cable or satellite.
The average pay-TV package has 190 channels, but people typically only watch 17 of those. Over the next few years, the price of pay-TV subscriptions is expected to increase 12%.
DISH's service could offer the best of both worlds. It would allow consumers to stream live programming and sports, while keeping their monthly bills much lower than they are now. The drawback would be fewer channels than traditional pay-TV services, and not all local channels would necessarily be included with DISH's service (but would still be free via an over-the-air antenna).
DISH is itself a pay-TV provider, with about 14 million subscribers. But the company sees the current pay-TV trajectory as unsustainable. DISH's year-over-year subscriber numbers were relatively flat at the end of the second quarter, and I think the company is looking to enter the OTT space first in order to boost its own numbers and turn the tide of cord-cutting.
This move could prove even timelier with the recent announcement that HBO will begin offering a stand-alone online streaming service sometime next year. Though the details are sparse, an HBO subscription that is not linked to a cable or satellite service shows just how much the industry knows things are changing. If DISH acts now, it will beat Sony and AT&T to the over-the-top game, which could give the satellite company a first-mover advantage in the space.
It's still unclear how quickly a service like this could take off, but with cable companies at the low end of customer service satisfaction -- while pay-TV prices continue to rise -- it's clear something needs to change soon.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Netflix, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.