For those who haven't been paying attention, pay-TV costs are exploding. For perspective, the FCC reports the cost of basic expanded TV service has risen at a rate of 6.1% over the past 18 years, while inflation has averaged 2.4%. In the report, the FCC mentioned the cost of content for the reasons behind these large increases.
Pay-TV companies are stuck in the middle, acting as a billing representative and a delivery agent for the networks and attaching their profit to the costs of the bills. Meanwhile, they receive the majority of customer ire when price increases are levied, even when those increases are going directly to content.
And when it comes to content cost control, DISH Network (DISH +0.00%) is the face of bare-knuckled negotiations with a long list of content disputes: The Weather Channel, NFL Network, and Disney's ESPN, among others, have fought with the Englewood, Colo.-based company.
The best example of content versus delivery disputes
Last year, one of the more fascinating disputes between a pay-TV operator and a network was the DISH Network-21st Century Fox (FOXA +0.00%) standoff that led to Fox News' removal from DISH for nearly a month. While it should be noted that DISH has had its fair share of disputes with networks, it alleged that Fox News tried to slip in a tripling of fees on an unrelated channel already under contract.
Then, what was a simple but hard-nosed business negotiation -- DISH's modus operandi -- took an ugly political turn. A Fox commercial with hosts Bill O'Reilly and Megyn Kelly lobbed the charge of censorship against DISH, a move Phillip Swann from TV Predictions called "unfair and objectible." But in the end, the charge appears to have worked: The tactic appeared to bring DISH back to the negotiation table, and the two reached an agreement that many found favorable to Fox on optics, although I found DISH to fare rather well on the actual specifics of the deal.
During the hiatus, Fox spokesperson Tim Carry estimated that 90,000 subscribers had left DISH as a result of the dispute. But DISH Network's fourth-quarter report cast serious doubts on Carry's estimates.
A loss of subscribers, but not 90,000
For the fourth quarter, DISH lost an estimated 63,000 subscribers, a far cry from the 90,000 Carry estimated. And while this amount is larger than the other three quarters in 2014, it isn't significantly different from any quarter outside the first.
After a gain of 40,000 pay-TV subscribers in the first quarter, the company lost 44,000 subscribers in the second quarter and 12,000 in the third as it fights a growing battle against cable cutters. Here's some visual perspective:
Source: DISH Network's quarterly and annual reports.
In the end, it appears Carry was correct to assert that the Fox News dispute would cost DISH subscribers but overexaggerated the loss. Over the past eight quarters, DISH averaged a loss of 9750 subs per quarter. Furthermore, even though DISH's fourth-quarter subscriber loss of 63,000 is a little high, it's not even the worst loss DISH has had in the past two years.
To be fair to Carry, this 90,000 figure quote came in the first week of January while the end of the quarter ran through the end of the December. But when adjusted for quarterly subscriber loss, it seems highly unlikely that Fox cost DISH 90,000 subscribers. That said, I think both companies would agree that taking their disputes public simply isn't worth it in the end.
