Dish Plans to Attract Younger Consumers With Upcoming OTT Service Through Disney Deal
Dish Network Chairman Charlie Ergen expects the forthcoming over-the-top (OTT) product offered through its programming deal with Disney to allow Dish to give a better product to customers and to experiment in advertising, he said Thursday during a conference call discussing Dish’s 2014 first quarter results. “We're experimenting a lot in the advertising realm in the sense that we believe that we can increase the advertising [revenue] to our programming partners,” he said during the call. Combining the data Dish has with Disney’s data enables Dish “to go to a customer in a way that we otherwise couldn’t go to them with a particular ad,” he said. It’s a step toward making programming partners money, he added.
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Dish is just a distributor, Ergen said. For content companies “that want to work with us, we're going to make them more money,” he said. “We can do a lot of things that increase [portion of] the revenue pie [that goes] to our programming partners but also to us.” OTT, in a sense, is an experiment for Disney, he said. It’s a “precursor to mobile,” he said. Every part of infrastructure “that we put in place for OTT is exactly the infrastructure we need for mobile,” he said. “For mobile, the advertising’s even better because we're going to a smart device, we know your physical location, we know your credit card information” and the ads are interactive, not static, he said. “With mobility, you need airwaves and spectrum and so we're well-positioned there.” The hardest thing about a programming negotiation is that “every penny we pay Disney is a penny out of our pocket and it’s a penny we have to charge the customers, he added: But in the advertising model, “it’s a win-win situation."
The upcoming OTT offering, called personal subscription service (PSS), would likely attract younger consumers, said Joe Clayton, Dish CEO. The pay-TV industry is missing the young adult, 18- to 35-year-old customer segment, he said. They're not going to spend $100 per month for their video content or watch 250 channels, he said. PSS will be a smaller offering of channels and they'll watch it on tablets or smartphones, he said. “Even though there may be a potential of some cannibalization to our existing satellite TV business, we believe the majority of this [adoption] will be incremental because we're missing it today.” Although Dish has enough programming contracts to launch the service now, “we don’t anticipate we'd launch before the end of the year,” Ergen said.
The FCC’s proposed adjustment spectrum screen for deciding how much spectrum a company could control could affect companies differently, Ergen said. AT&T, Verizon or T-Mobile could buy Dish or vice versa, “if the rules are what people think they are,” he said. “Sprint probably couldn’t buy us without having to give up spectrum.” A transaction between Dish and DirecTV would be “the highest synergy transaction” that Dish could do, but it would likely face some regulatory headwinds “depending on how they [FCC, Department of Justice] come down on Comcast and Time Warner, he said. “It’s a different landscape than it was 11 years ago when we tried it."
The Dish executives reiterated their concern for a possible combined Comcast/Time Warner Cable company. The overall takeover is a bigger concern than Comcast’s agreement with Charter to divest 3.9 million customers, Ergen said. It has the potential to bring an “unprecedented concentration and power in broadband” and such a company would have leverage “against programmers that we have to compete against,” he said. If programmers get less money from them, then the programmers will have to pass it on to somebody else, most likely the “littler guys,” he said. Controlling the pipe to a great extent would create a virtual monopoly, he added: “You'd never have a Dish Network startup or Facebook or Google startup in that environment.”
The change in geographic footprint as a result of the Comcast and Charter agreement gives them marketing and operating efficiencies in local markets by concentrating geographies, said Thomas Cullen, executive vice president-corporate development. It also improves their position in terms of local programming, which can include regional sports networks, he said. However, “we are concerned about the sheer scale of the entity and potential for very disruptive bundling,” Cullen said. The geographic concentrations make sense for the cable guys, Ergen said. “We don’t begrudge the fact that they're doing smart things.”
Dish reported revenue totaling $3.59 billion for Q1 2014, up from $3.38 billion from the same period last year, it said in a news release (http://bit.ly/1srPwXr). It activated about 639,000 gross new pay-TV subscribers compared with about 654,000 of those subscribers in the same period last year, it said. Dish brought its broadband subscriber base to approximately 489,000 by adding 53,000 net broadband subscribers in Q1 2014, it said.