• Dish's Chairman Tamps Down Expectations for Upcoming OTT Service Amid Conflicting Goals

    Dish Network has been very public about its interest in launching an over-the-top pay-TV service (a virtual pay-TV operator or "vPop") this year. But on Dish's Q3 '14 earnings call yesterday, company chairman Charlie Ergen provided an update on its progress, tamping down short-term expectations for the vPop service and its likely market impact. More importantly, as I explain below, Ergen's comments highlight some of the vPop's conflicting goals and significant challenges.

    Following are Ergen's initial comments on the call about the vPop service (from the transcript at Seeking Alpha), in which he speaks candidly about the complexity and uncertainty involved with the launch:

    "First, on OTT, we still plan to launch a product before the end of this year. We continue to have several major programmers signed up and a lot of interest with some others. We won't sign up everybody because it's kind of a skinnied-down package. So we're going to make sure that we can meet the price point of consumers.

    We are having some technical issues on our end and some on our programming partners' end, in terms of now that we're getting the signals, to put all those signals together and to be able to insert dynamic ads is a fairly complex product project, even though we've been working for it for a long time. We're now actually doing it, and when you start doing it, it's not theory anymore, it's actual practicality. And so we are running into a few snags there.

    But we still plan to meet the year-end our self-imposed year-end deadline. But whatever we do, we're going to do it right. I think it's going to be a good product. I think it's going to be a good product for our programming partners, and I think I don't think it's going to change the world in the first few months. But I think that it's something that has a long-term path trajectory.

    And we don't have all the answers, quite frankly, on how the best way to do it is. And so that's why we spend a lot of time with our programming partners to discuss what might work. We hope that our strategy works. And it's not easy to do. It's a lot more than just putting a package out there. There's a lot of technology. There's intellectual property. There's the devices. There's operating system and ease-of-use for consumers. There's billing, there's encryption, there's ad insertion, so there's a lot of pieces to it. But it's very similar to what we did years ago on satellite, a lot of complex things have to come together on that."

    Ergen later explained that he still sees the price being around $1 per day or $30 per month. He also articulated who the target market is for the vPop service:

    "So on OTT, we really target the 18- to 35-year-old who's not paying for TV today. It's going to skew a higher - it's going to skew, short term, more male. It's going to skew more urban. It's going to skew more apartments as opposed to homes. And it's certainly going to skew towards sports enthusiasts."

    From my perspective, it's very hard to understand how Dish's vPop can be BOTH a low-cost service AND one that's oriented toward sports fans since sports programming is by far the most expensive type of programming around. And since sports networks are also the most desirable from a linear and advertising standpoint, large programming groups use sports as leverage to bundle their other networks.

    In fact, Dish's own impasse with Turner illustrates this point. Because the companies' carriage deal has expired, Dish has taken down CNN and Cartoon Network, though it still has TNT and TBS up under a deal that runs through the end of the year. With Turner Sports' new 9-year, $11 billion NBA deal, including it in the Dish vPop seems like an imperative. Yet it seems so unlikely Dish could get it for its vPop without also paying for the rest of the Turner networks, in turn driving up its overall programming costs and reducing its financial viability.

    Yet another problem is with expensive regional sports networks (RSNs). On the call Ergen highlighted the super expensive new Dodgers sports network which Dish doesn't have a deal with. But how appealing would a Dish vPop service in the LA area that's geared to sports enthusiasts be if it didn't include the Dodgers (and possibly not the NBA)? How about other parts of the U.S., particularly the New York area which also has multiple high-priced RSNs? Can Dish afford to include those in its vPop?

    And that's just sports, then there's also the question of which entertainment networks will be included, particularly the expensive broadcast TV networks that all want hefty retransmission consent fee payments..how many of these can be included when the retail vPop price is just $30 per month? And remember all of them include highly desirable sports as well.

    It's always refreshing to hear Ergen speak candidly about the tough economic issues facing the pay-TV industry. And I give the company lots of credit for exploring the vPop concept and how to reach cord-nevers. But given all the conflicting goals and the other reasons I spelled out a couple of weeks ago, it's still awfully hard to see how its vPop - or anyone else's - can get much traction.