Tuesday, March 09, 2004

A little more Dish dish

Since the Google Gods have determined that the Wisdom is your best source for information about the Dish Network / Viacom flap, here's a bit more information for you.

The big question here remains "why?". Viacom will tell you Dish is being unreasonable; that the fees they are asking for are in line with what Comcast, DirecTV and everybody else in the world pays to watch MTV, VH1, BET and Comedy Central.

But I don't think the issue is really about subscriber fees. According to Dish's latest press release, Charlie Ergen & Co. are as bothered by "strong-arm" tactics used by Viacom as they are about the rate increases. According to Dish, Viacom is not only demanding that Dish carry all channels it offers, but also wants to re-negotiate the carry deals still in effect for some Viacom channels.

If it was just about subscriber fees, I think the deal would have been closed long ago. According to SEC filings, Viacom makes about 29% of its cable channel money ($2.4 billion a year) from subscriber fees and 71% ($5.8 billion) from advertising. Dish Network represents about 10% of Viacom's cable households, so the company is risking around $820 million in annual revenue (advertising and subscriber fees) to press Dish for more subscriber money.

Viacom - according to their own press release - seeks a rate structure that would have Dish pay Viacom "less than 5%" (read: pretty much 5%) of what Dish currently generates from the average customer.

Dish had 9.08 million subscribers at the end of October and generated an average of $50.79 per month from each subscriber.

That means Viacom wants $2.54 per subscriber per month. If they got that, they'd generate about $274 million annually in Dish subscriber fees. Today's numbers indicate they get about $240 million a year from Dish subscribers.

So Viacom is putting $820 million in annual revenue at risk in order to generate $34 million in incremental revenue? Is Sumner Redstone really that shortsighted?

I don't think so.

I imagine the charge Dish made against Viacom (that the company is trying to pressure Dish to carry crap channels like the new Nick one by threatening to withhold Viacom-owned CBS stations) is the meat of the issue here. Viacom wants to ensure that all of their channels get the widest distribution possible in order to raise ad income (and subscriber fees), and they don't see why a company like Dish should be opposed to forcing these channels (and the cost of them) on to their customers.

And until 3 a.m. eastern this morning, that business model had worked just fine. God knows cable companies don't mind charging their customers for whatever a content provider wants them to pass along. But as Viacom is finding out, Charlie Ergen don't play that. His company was created on the prospect that customers would get more from their TV provider; that the company would actually put the customer's needs first. I've dealt enough with Dish Network to have experienced this firsthand. No long waits on the customer service line; very frequent updates and improvements to my DishPVR software and good communication about what's going on with the service. If Dish could teach this kind of customer focus to its installers, they'd be a great company.

So, for you Dish customers who are ready to call the cable company so you can watch Nick and Jessica, just keep in mind that Dish's decision to go dark with the Viacom channels is an effort to protect your interests along with theirs. If you've hated Dish Network up until now, go ahead and switch.

But if you, like I, can remember what it was like to suffer under a cable company and appreciate what Dish has and is trying to do for you, stick it out. It's not like MTV and VH1 don't re-run all of their shows 1,000 times.

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