Why the internet TV pact between Dish and Disney breaks new ground for cord cutters

Things are about to change in the TV industry, and Dish wants to be on the winning side of those changes — even if that means catering to people who don’t want to pay $100 for an expensive TV bundle.

The satellite TV operator announced a far-reaching content deal with Disney (S DIS) late Monday that not only continues to provide the satellite TV operator with the necessary rights to carry Disney networks like ABC and ESPN, but also includes rights to use the same networks for an internet-based pay TV service. It’s the first time that a major broadcaster has signed a deal for any such offering in the U.S.

A number of companies have tried for some time to launch internet-based TV services. These efforts include Intel’s (S INTC) Intel Media unit, which tried to get a service dubbed OnCue off the grounds by the end of last year, but failed to do so, with Intel eventually selling of the OnCue assets to Verizon, which now wants to offer a similar service to broadband and wireless subscribers. Sony (S SNE) is another contender; following months of rumors, the company announced at CES that it plans to launch an internet-based TV service, with tests scheduled to begin some time this year.

As far as we know, neither Sony nor OnCue have signed agreements like the one secured by Dish this week. Intel Media was apparently close to sealing the deal with at least some of the big broadcasters, but the sale to Verizon, which itself took much longer than people with knowledge of the negotiations expected, slowed down content negotiations.

So how did Dish leapfrog OnCue, Sony and probably a handful of other companies that have at one point or another looked into launching an internet-based TV service?

Carrots are nice, but it’s always good to have a stick, too

Dish was directly threatening the broadcasters’ ad business when it introduced the auto hop feature of its Hopper DVR two years ago, and it did so with calculated precision: Auto hop allows consumers to watch their favorite shows without any advertising by automatically skipping over those annoying ad breaks. However, this only works for shows of the four major broadcasters, and only during prime time. It’s just potent enough to make it hurt, but not far-reaching enough for consumers to always rely on it.

As part of the agreement with Disney, Dish will disable auto hop for shows running on the company’s networks for the first three days after an episode airs, which is the time that matters to advertisers trying to reach an audience. The partnership also includes some additional commitments on future ad technologies, which could eventually allow Disney to swap out broadcast ads with more targeted and personalized advertising, possibly even after that three-day window.

It’s likely that Dish will try to strike a similar deal with the other major broadcasters, and the possibility to further monetize content that’s otherwise worthless could be just the incentive that networks need to join the satellite operator — especially since the legal fight against Dish’s ad skipping has been a dud.

That doesn’t mean that forging these contracts will be easy, especially because Dish would need everyone to come on board before it can actually launch a meaningful offering. It will also be a challenge for Dish to find that sweet spot that could make its internet service a success for cord cutters and other customers unwilling to pay $80 to $100 per month for cable or satellite TV. Bloomberg reported Tuesday that Dish was trying to offer its internet service for $20 to $30 per month, which sounds like a good proposition for many cord cutters. But getting both pricing and content line-up right will be challenging.

But what Dish has done with the Disney deal is that it has shown a way forward for many of the issues that plague the industry today: Broadcasters and pay TV operators have long fought over retransmission fees, which have proven to be a roadblock for new technologies. By not only settling their retrans fight, but also using it to address internet TV and addressable advertising, Dish and Disney have show that there are ways forward.

That’s a big step towards making internet-based TV services a reality. Now it’s time for Verizon and Sony to follow up with news of their own.

Image courtesy of Flickr user angelrravelor.