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Disruptive Charlie Ergen Now Leads Race to Take On Cable With Online TV

Ad Skipping Proving a Powerful Card for Dish to Play

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In the race to deliver TV over the Internet, Charlie Ergen's Dish Network Corp. is pulling ahead. And that may have implications for marketers and other media companies that have grown familiar with Mr. Ergen's penchant for disrupting established businesses.

With a groundbreaking agreement this week with Walt Disney Co., the satellite-TV company is poised to be the first to offer an internet-based competitor to cable TV, a new kind of business that other major companies such as Intel and Apple Inc. have tried -- and so far failed -- to deliver.

The deal gave Dish the rights to carry the Disney Channel, ABC and ESPN online in a service known as over-the-top, or OTT, because it runs over an internet connection. In exchange, Mr. Ergen agreed to put limits on Dish's ad-skipping technology -- essentially leveraging one disruptive tech to lay groundwork for something perhaps even more transformative.

Dish now plans to negotiate with other major cable networks, offering similar terms to get online rights.

"Every deal is different, but certainly there are parameters we agreed to that will help us define how we approach the OTT business," said Dave Shull, Dish's chief commercial officer, in an interview. "Disney-ESPN content has a great deal of appeal and is a core of what we want to offer on the OTT side. They moved first and we will build around that."

An internet-based TV package would give consumers a new option beyond cable, satellite and phone companies to get access to their favorite channels. For Dish, it would be a way to gain new subscribers at a fraction of the cost, since online delivery doesn't require as much physical equipment. It also gives Dish a potentially bigger market since it would no longer be limited to consumers who are willing or allowed to mount satellite dishes on their homes.

$20-$30 a month?
Dish is working on price and packaging, and it's too early to speculate on when it might introduce the service, Mr. Shull said. The company aims to offer the service as soon as it can get enough programming deals in place, and is considering charging $20 to $30 a month, said people with knowledge of the matter who asked not to be identified because the plans are private.

"We think there is a group of individuals, 18-to-34-year-olds, who would love to have a lower-cost product with some of the top content out there," Mr. Shull said. "That's who we'll be targeting."

The Disney agreement would let Dish offer a personalized subscription service charging for each individual viewer in a family, a significant change to the current cable-TV model based on one monthly fee for the entire household, said Rich Greenfield, an analyst with BTIG LLC, said on Bloomberg Television today.

"We are talking about moving from a household subscription," Mr. Greenfield said.

The promise of web-delivered TV has spurred a long line of potential competitors to seek the rights from cable channels that Dish just won from Disney. No one else has come as close as Mr. Ergen.

Sony Corp. reached a preliminary agreement in August to stream Viacom's programming, a person with knowledge of the matter said at the time. Intel sunk more than $500 million into a TV-streaming service before scuttling the program and selling its technology to Verizon Communications, which is considering its own online offering. Apple has been unable to persuade cable networks to let it sell their channels a la carte instead of bundling them together.

'Master negotiator'
Mr. Ergen sealed his deal with Disney by using technology that threatened its advertising revenue. Dish's AutoHop service lets users skip commercials, and Disney was one of several TV programmers that went to court to stop it. In their deal, Dish agreed to disable AutoHop for Disney programs for three days after their air date, and the parties said they would drop litigation over the matter.

"This is just further proof that Charlie is a master negotiator," said Amy Yong, a New York-based analyst at Macquarie Group. "They didn't just drop the litigation, they also gave him more distribution rights."

Ergen is looking to take the same AutoHop terms to other major programmers to get streaming rights. The first step may be to reach an accord with NBCUniversal, owned by rival Comcast Corp. Because of a regulatory agreement, the network has to offer internet rights to anyone who has already secured such a deal with another major programmer. The requirement was part of the consent decree for Comcast's purchase of NBC Universal.

Cable-network owners have also insisted that OTT providers offer the same package of channels that cable and satellite services do -- a condition that Dish agreed to in its deal with Disney. As an example, Dish can't sell only ESPN or only the Disney Channel, according to the people.

If Dish goes ahead with an online service, competitors could follow -- including cable companies like Comcast and Cablevision Systems Corp., which could move out of their traditional regions to offer TV nationwide, said Bernard Gershon, a digital media consultant in New York.

"This potentially could start a battle with other operators," Mr. Gershon said. "If Dish gets similar rights from other programmers, this will be a groundbreaking event."

~ Bloomberg News with Ad Age staff ~

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