The blackout affects an additional 10.2 million Dish subscribers who aren’t signed up for HBO but who could be potential customers of the premium entertainment channel.
It’s the first time HBO has ever “gone dark,” in the parlance of TV execs. Viewers are being caught in the middle, with potential consequences on both sides: An extended outage could lead to significant customer losses.
The standoff between Dish and HBO stems from a seemingly run-of-the-mill contract negotiation over whether Dish should pay HBO for a guaranteed number of customers, whether those subscribers materialize or not.
But it also takes place against the backdrop of a historic Justice Department effort to scrutinize the increasingly concentrated media industry and to unwind the merger that gave control of HBO to one of the nation’s biggest telecom companies: AT&T.
The impasse carries enormous stakes that reflect the dire condition of the legacy television business. What began as a trickle of consumers toward digital TV alternatives, such as Netflix and Hulu, has turned into a torrent, with analysts such as eMarketer predicting that 33 million Americans will have given up their pay-TV subscriptions by the end of the year. With both Dish and AT&T reporting even-steeper-than-expected declines in their traditional TV subscriber base in recent months, the pressure to retain customers is intense, analysts say.
“The rate of decline in the core satellite TV segment has sharply accelerated,” Craig Moffett, an analyst at MoffettNathanson, wrote in a research note this week. “They have argued that retaining their best customers is now their priority.”
Channel blackouts are commonly regarded as a game of chicken in the TV industry, with participants on each side hoping the other will blink first. Dish’s chairman, Charlie Ergen, is widely known as a combative opponent in negotiations who has frequently allowed channels to go dark rather than agree to deals he doesn’t like. Dish has previously gone dark with Univision, Sinclair, Fox, Viacom and AMC, according to Moffett. Ergen has said in the past that “real” negotiations do not begin until a blackout occurs.
In a sign of how acrimonious the feud has become, Dish has accused AT&T of weaponizing HBO in a bid to lure its customers away to AT&T’s DirecTV, its chief rival. AT&T denies any interference in HBO’s contract negotiations. And it alleges Dish has secretly “collaborated” with the Justice Department to tarnish the telecom giant’s name, in the wake of the government’s failed attempt to block AT&T’s purchase of Time Warner, now renamed WarnerMedia.
“This is purely an anticompetitive play that we tried to warn about,” Ergen said during an investor conference call Wednesday. “AT&T knows full well that for many of our customers the only place they can go is to DirecTV, and they own HBO and they own DIRECTV,” Ergen added. “So they’re willing to make that trade-off.”
Although some Dish customers may be able to sign up for HBO’s stand-alone digital app, HBO Now, many live in rural areas without high-speed Internet access, effectively taking that option off the table, Ergen said.
The Justice Department declined to comment on AT&T’s accusations of collaboration. But a person familiar with the agency’s thinking called the idea “untrue” and “laughable,” speaking on the condition of anonymity in light of the government’s pending appeal in the case that allowed AT&T to purchase Time Warner.
Keith Cocozza, a spokesman for WarnerMedia, HBO’s parent, said Dish bears the blame for causing the blackout by refusing to deal.
“HBO offered to extend talks while they negotiated towards an agreement. Dish walked away,” Cocozza said. “HBO continues to deliver its signal to Dish and [is] willing to negotiate.”