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How DISH Betrayed Customers To Strike A Deal With CBS

By Anders Bylund - Dec 20, 2014 at 11:23AM

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DISH Network bent over backward to get CBS stations back on the air. Was it worth the trouble?

All is fair in love and war. The broadcasting industry straddles those two emotion-soaked fields, so it's only natural to expect some unusual fireworks in this market. Earlier this month, CBS (PARA 1.51%) and DISH Network (DISH 3.82%) provided some flashy sparklers for entertainment investors.

DISH Chairman Charlie Ergen is known as a masterful negotiator. Image source: DISH.

First, as the contract between the two companies headed toward expiration, they went through a series of short-term extensions. Then, CBS went dark on the screens of DISH customers as the time for stopgap measures ran out. Finally, just 12 hours into the CBS blackout, the channel returned to DISH customers -- with some important caveats.

If the duel at high noon drama of the actual blackout wasn't interesting enough, the concessions DISH made to get its most popular station back on the air added another layer of spice.

Sure, the companies battled over the rebroadcast fees for popular content like Sunday Night football and The Big Bang Theory. But the squabble went beyond mere pennies-per-eyeball negotiations.

More important, CBS convinced DISH to temporarily disable its ad-skipping DVR viewing features for CBS-owned content. Recorded CBS shows will only enjoy DISH's automatic ad-skipping technology seven days after the original broadcast.

DISH loses some marketing muscle here, as the service is often promoted with the viewer-friendly nature of minimal advertising placed front and center. CBS wins some negotiating power for its own ad-sales tables, as the lack of DISH's ad-removing feature puts more eyeballs in front of every DVR-recorded show.

So it's pretty clear who won this round, unless CBS also dialed down its license fees in return for this big concession.

But perhaps Sumner Redstone, Ergen's counterpart at CBS, got the better of him this time. Image source: CBS.

In the long run, DISH is undermining the value of its Hopper DVR platform. The company signed another feature-neutered agreement with Walt Disney (DIS 3.30%) over the summer, limiting the ad-skipping feature on popular Disney-owned stations like ABC and ESPN. If this becomes standard operating procedure for DISH, the company will eventually lose most of the promotional value of having invented the ad-skip system in the first place.

Moving forward, I'll keep a close eye on DISH's broadcast contract renewals. Consumers don't exactly love commercial breaks, making the Hopper ad removals an attractive selling point.

DISH might sidestep the entire issue with an upcoming satellite-less TV service delivered over the Internet instead, but the CBS agreement wasn't exactly a rousing battle cry for that effort. Disney included a "sweeping" swath of digital broadcast rights in its DVR-crippling deal, but CBS has only agreed to keep talking about such rights. DISH was hoping for more, and won't be able to launch a credible service until most of the major networks have agreed to sell content licenses for it.

Anders Bylund owns shares of Walt Disney. The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days.

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DISH Network Corporation Stock Quote
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