Disney-Dish Talks Said to Hinge on Skipping Ads, Adding Networks

AutoHop DVR Presents Obstacle to Deal

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Walt Disney Co.'s contract renewal talks with Dish Network are hung up on Dish's ad-skipping technology and terms for two new Disney cable channels, according to people familiar with the discussions.

Dish, the second-largest U.S. satellite-TV service with 14 million subscribers, and Disney, owner of ABC, ESPN and Disney Channel, gave themselves one to two days beyond yesterday's deadline to hammer out an accord, said the people, who sought anonymity because the discussions are private. Talks may last longer, they said.

Dish's AutoHop technology, introduced in May 2012, presents an obstacle to a deal. The one-button feature allows subscribers to skip commercials on recorded broadcast TV shows, undermining the effectiveness of network ads. Dish is embroiled in litigation with ABC, CBS Corp., Comcast Corp.'s NBC and 21st Century Fox's Fox over the feature.

On the other hand, Disney is also trying to build distribution for two new channels -- Fusion, a venture with Univision Communications aimed at Hispanics, and the SEC Network, which will feature Southeastern Conference college sports beginning next year. Terms for both are being negotiated, the people said.

Pay-TV companies have sometimes complained that programmers use their widely-viewed channels as leverage in negotiations to gain wider carriage or increased fees for less-watched channels.

Dish's Hopper, the bane of ad-supported TV networks
Dish's Hopper, the bane of ad-supported TV networks

Dish and Disney said yesterday they agreed to a "short-term" extension of their agreement, which was due to expire Sept. 30. The deal prevented a blackout of ESPN and the Disney Channel for Dish subscribers, including ABC viewers in markets where Disney owns the stations, such as New York, Los Angeles and Chicago.

Sports costs
Dish Chairman and co-founder Charlie Ergen has lamented the rising cost of sports programming for several years. He suggested in August a pay-TV company may one day choose to go without the top-rated all-sports channel -- a strategy that would lower prices to consumers.

ESPN charges pay-TV operators about $5.54 a month per subscriber, according to research firm SNL Kagan.

"Somebody, sometime may decide that sports isn't something they have to have," Ergen said on the Aug. 6 call. "There could be a day when, strategically, companies just can't get together, where they go opposite directions and they both have strategies that work for them, and we're prepared to go either way."

Pay-TV rights
Broadcast networks have been raising prices for so-called retransmission rights -- fees paid by pay-TV services to carry signals that are available free over government airwaves. Content owners are also seeking to boost revenue from mobile devices that extend delivery of their shows beyond the home.

In an earlier dispute, New York-based Time Warner Cable agreed to pay a significant increase for the right to carry CBS, approaching $2 a subscriber per month, people with knowledge of the situation said in early September. Time Warner Cable failed to obtain out-of-home rights for mobile devices, except for CBS's Showtime Anytime, they said.

~ Bloomberg News ~

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