Are you a Dish Network (NASDAQ:DISH) subscriber? If so, you may have recently noticed an ominous warning while watching CBS (NYSE:CBS): "Attention, Dish customers, you could soon lose CBS." The warning, alerting viewers they risk losing on CBS' host of networks and shows -- including the most successful script TV drama, "NCIS" -- if negotiations between the two companies aren't completed soon.
Dish network, apparently unhappy with CBS' decision to go public, issued a formal response:
Only CBS can force a blackout of its channels. Dish is actively working to reach a deal before the contract expires and has successfully negotiated agreements representing hundreds of stations in recent months that benefit all parties, including our viewers. We are unsure why CBS decided to involve customers in the contract negotiation process at a point when there is time for two parties to reach a mutually beneficial deal.
For those following this industry closely, disputes between stations and pay-TV providers happen quite frequently. Although they have a symbiotic relationship, the two rarely agree on the cost for the content and vigorously argue about affiliate and retransmission fees. This year also has seen DirecTV viewers alerted to a possible loss of AMC Networks and its successful "The Walking Dead" show. However, it does appear networks are more willing to air these grievances publicly rather than handle negotiations privately as in years past.
Is this more than just fees
Obviously in these negotiations the biggest issue tends to be money. According to the FCC, content costs are the biggest reason for your exploding cable bill. Media research firm SNL Kagan estimates the wholesale cost per network should increase 36% by 2018, or roughly 8% per year. Basic cable bills, according to SNL Kagan, are supposed to increase only 2.8% during that period. The differences between those two totals are lower profit margins for pay-TV providers.
But if Dish Network CEO Charlie Ergen's comments are of any indication, there are other issues besides money that will be part of the negotiation. Although he was more hopeful with CBS than with Time Warner's Turner Networks on his Nov. 5 conference call, he did specifically mention CBS's new over-the-top service, CBS All Access, as a possible point of contention.
This is interesting due to the specific inclusion of CBS's new service as a point of contention with negotiations. I've personally speculated CBS and Time Warner could use this as a negotiation tactic with pay-TV providers for better terms, rather than competition for cable, but Ergen's posture appears like it is actually a negative:
It's interesting because one of the dynamics there is, CBS channels are available over-the-top. So there's an alternative for customers. So on one hand, that's an interesting business plan. On the other hand it makes that product less interesting for MVPDs because customers have a choice to get it somewhere else and not everybody watches that channel.
Why not push lost subscribers to CBS All Access?
Just like AMC, CBS now has a pop-up website dedicated to keeping CBS on Dish: KeepCBS.com. Under the take action section, there are six actions for angered CBS fans ranging from the less severe social media actions of sending a Tweet and posting on Facebook to rather hostile ones like switching providers. However, one action that's conspicuously absent there is to sign up for CBS All Access if the channel goes dark. Essentially that's a surefire way to increase enrollment for your new service and to ensure most viewers don't miss the station's content.
That said, CBS and Dish will probably work out a deal in the last minute -- that's quickly becoming the modus operandi in pay-TV negotiations. As subscribers continue to abandon pay-TV due to over-the-top services, horrible service, and large price increases, look for more content providers to make contract negotiations public going forward.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends AMC Networks and Facebook. The Motley Fool owns shares of AMC Networks and Facebook. 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.