Dish Hops over the top

Dish Network’s landmark retransmission and TV Everywhere deal with Disney last week was in large part an out-of-court settlement of litigation between the companies that both sides had an incentive to settle.

Dish Network has been pushing the envelope in its Hopper set-top DVRs for some time now, rolling out features such as Prime Time Anytime, which allows users to record automatically all programs broadcast during prime time hours and figure out what to watch later. That was followed by AutoHop, a feature that allows users to skip over all the commercials in those recordings automatically during playback. Then came the Hopper with Sling, which allows users to stream both live and recorded programming from their DVR to mobile devices, whether in or out of their homes.

With each new feature, Dish earned the legal wrath of broadcasters, who claimed those advanced features violated their copyrights, embroiling the the pay-TV provider in years of costly litigation and complicating essential business dealings between Dish and the networks.

Yet for all that effort and angst, Dish’s Hopper was essentially a workaround for the fact that the satellite TV provider cannot offer its subscribers interactive features such as VOD on its own platform because of the lack of a direct return path, putting Dish at a disadvantage to the cable TV providers with which it competes. What it offered instead was a kind of do-it-yourself VOD hack, with massive local storage and advanced streaming features standing in for head-end VOD servers.

As much as Dish chairman Charlie Ergen at times seemed to get a kick out of baiting the networks with features like AutoHop, being able to offer subscribers genuine on-demand services, involving both broadcast and pay-TV content, as Dish can now do with ABC, ESPN and Disney Channel content, was always the preferable option.

As for Disney, the broadcasters’ litigation against Dish was not going very well for the broadcasters. They had failed to get courts to block Prime Time Anytime and AutoHop, while Fox’s separate bid for an injunction against the Hopper with Sling feature came up craps as well.

While all those rulings were preliminary, they made pursuing the litigation much riskier for the broadcasters. Final rulings on the merits that went against the broadcasters could be hugely problematic for the networks, just as the Second Circuit’s 2008 ruling in the Cablevision remote-DVR case has proved problematic. Settling increasingly looked like the better part of valor, which is why CBS CEO Les Moonves was quick to suggest┬áthat a similar deal might be available with the Eye Network as well.

The one novel, non-litigation driven element in the Disney deal was the provision granting Dish the rights to stream real-time ABC and ESPN feeds to non-pay-TV subscribers as part of a multichannel OTT package at some unspecified future date. While those rights appear to come with quite a few strings snugly attached the deal nonetheless marks the first time a major network owner has allowed its linear content to be made available online to non-authenticated pay-TV subscribers.

It apparently won’t be the last, however. Shortly after the Dish deal was announced, DirecTV said it, too, was in talks with Disney about linear streaming rights and expects them to be included in DirecTV’s upcoming carriage and retransmission renewal deal with the network.

Similarly, Verizon CEO Lowell McAdam told an investor conference last week that Verizon Wireless expects shortly to offer a linear pay-TV service on mobile platforms under the FiOS banner.

Don’t expect the floodgates to be thrown open generally quite yet, though. Dish and DirecTV occupy a unique niche in the pay-TV world in that their existing carriage deals are premised on a presumptively national footprint.

In the wireline cable world, rights are typically limited territorially to the operator’s physical footprint. While those deals generally are not exclusive, licensing another operator to offer the same programming in that market would affect the rate the incumbent paid. The one exception is for satellite providers, whose signals reach everywhere by the nature of the technology. Incumbent cable operators won’t like it, but forcing them to compete with Dish and DirecTV, even if their signals are sent over-the-top instead of out of the sky, would not fundamentally change the competitive balance in the pay-TV business.

As for Verizon, mobile rights are in a separate class so would not be considered competitive under any existing carriage deals. And like satellite, wireless service providers have presumptively national footprints.

Others will eventually be allowed into the OTT pay-TV game. But it’s going to take a bit more negotiating by the networks before we get there.