DISH subscribers aren't the only ones who will probably like the new Blockbuster Movie Pass. Major content producers have a number of reasons to like the new service as well. One reason is certainly the increased competition (and likely further increase in prices) for the rights to stream their movies and past season TV shows. But there are several billion other reasons too. Namely the billions of dollars paid by DISH now to the major integrated entertainment companies for the carriage of their TV networks. Content providers' desire to keep that existing revenue stream going strong likely gives DISH a boost in contract negotiations for a new subscription movie streaming service, one that helps them vs. the incumbent Netflix or a potential strong entrant like Amazon.
Just how much is DISH paying to the major content providers? As an example let's look at DISH and Disney. It's likely that DISH pays the most to Disney, because of ESPN. Let's assume a conservative average of $7 a month per subscriber for carriage of ESPN, Disney Channel and various other ESPN/Disney cable channels. At a current 14 million DISH subscribers, that's $1.2 billion a year paid to Disney. This doesn't include other revenue to Disney from DISH including movie PPV, ABC retransmission fees and the revenue from Blockbuster for DVDs/Blu-ray discs.
How much does Netflix pay to Disney? The simple topline answer is... a lot less. For 2010, Netflix reported its total "Cost of Subscription" (content acquisition plus mailing costs - but not fulfillment operations) was $1.2 billion. So DISH is paying more to Disney than Netflix is paying in total for content acquisition.
Certainly, DISH is paying much of their current money to the TV network units of Disney, while Netflix is dealing primarily with the movie studio unit. But the past "siloization" of large multi-property entertainment companies is breaking down, driven by changes in business practices and consumer behavior. A recent example is the carriage agreement concluded Jan. 1st between News Corp and Time Warner Cable. It's a comprehensive TV agreement, including retransmission fees for the Fox broadcast network and carriage fees for Fox cable networks.
As DISH and potentially other MVPDs move towards offering subscription online streaming services, will we see overarching deals that include rights for broadcast network and cable TV networks included with streaming rights for movie studio and TV production unit properties?
A potential deal linkage of TV network and movie properties could involve a large share of U.S. film distribution. In the U.S., five of the "Big Six" movie studios are part of conglomerates that have significant TV network assets. These are Disney/Touchstone (Disney), Universal (Comcast/NBCU), 20th Century Fox (News Corp), Warner Brothers (Time Warner) and Paramount (Viacom). Of the "Big Six", only Columbia Pictures, owned by Sony, does not have significant network siblings.
Certainly, the relationship between MVPDs and content providers is not always a smooth one. In July of last year, DISH dropped carriage of the HD feeds of four Disney-owned channels in a dispute over extra charges for HD. And only four months ago both Disney and Starz sued DISH over claims of breach of contract due to DISH offering Starz for free to some subscribers. Nonetheless, Starz is a launch partner for DISH's Blockbuster Movie Pass.
DISH's entry into Netflix's turf will undoubtedly change the business dynamic for how TV network and movie streaming deals are viewed by content providers and service providers (both MVPDs and OTT entrants). It will be interesting to see how this will impact the rise in consumers' ability to access video content in new ways and on new devices. Hopefully the innovation we have seen recently will not be stifled by MVPDs bringing their considerable content expenditures to the table.
ShareThis