Disney-Dish Talks Hang-Up Is the Hopper (Analysis)

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Ergen and Iger

The money's settled -- it's the battle over disruptive technology that's holding up a new deal between the satellite giant and the content company after months of talks.

Is Dish Network finally near a retransmission consent deal with Disney and its ABC television network?

The big obstacle, it is now apparent, is the battle over Dish’s high-tech DVR called the Hopper, and in particular its AutoHop feature.

The system lets customers skip commercials completely, compared to other DVRs, which let viewers speed through commercials while leaving them onscreen. And Disney is among a number of broadcasters involved in lawsuits seeking to block the Hopper -- they say it can destroy their business model by eliminating their biggest source of revenue.

Meanwhile, the channels -- local TV stations, networks like ESPN, ABC Family and the Disney Channel -- still appear in the 14 million homes served by the satellite service thanks to a series of temporary extensions.

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Dish Network chairman Charlie Ergen was blunt on the subject when he spoke to analysts. While he said he is "cautiously optimistic" for a deal in the near future, “we’re not going to negotiate on giving up a customer experience we think is important.”

He said, in a world where everyone has a DVR, the Dish device has become a rallying point for those worried about viewers skipping commercials. “I think the Hopper,” said Ergen, “and this is just my opinion, has nothing to do with our negotiation. Our timing wasn’t particularly great on that. It was more of an emotional thing than a reality thing.”

Ergen lumped the controversial technology in with all DVR recorders, adding that what Dish is really trying to do is “get broadcasters to think about if we're going to skip commercials, let’s recognize the fact.”

Ergen said the real question should be, “Is there a better way for us to monetize that that is fair to the customer, but actually monetizes that in a way for you, the broadcasters, who need a dual income stream. We are a big believer in the dual income stream because otherwise broadcasters would have to raise their rates more, but (at the same time) you have to understand the world has changed.”

The Hopper, said Ergen, doesn’t just eliminate commercials but also has a feature “that can target commercials to customers in a better way and give the customer a better experience. I think, and this is my personal opinion, long-term, [the Hopper] will give broadcasters more revenue.”

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Disney and other broadcasters don’t agree, but the courts have not rushed to their aid. On Sept. 18, a 9th circuit court judge in New York City denied ABC's request to stop Dish from marketing the Hopper.

ABC argued that the Hopper caused “irreparable harm” by hurting ad sales and disrupting its exclusive right to control its programming, and that the device violates its copyright and programming agreement with Dish. 

As for coming to terms on a deal, Ergen told analysis that “there is not a particular timeline,” adding: “It really has to be done right long-term." The issues of how much Dish will pay Disney and related distribution matters now appear to have been settled. 

“There’s always economic issues,” said Ergen, “but because the Disney contracts tend to be relatively long-term in nature, I think both sides are trying to look at where the technology is going and what the world might look like in several years.”

That was in line with comments made by Disney CEO Robert Iger last week on a call with analysts: “The negotiation is more about issues related to technology than related to the more standard issues of basically sub-fees and distribution.”

Iger told analysts Disney was also willing to play the waiting game: “There are still issues to be resolved and they could take some time, but as long as we're making progress, we're perfectly patient to see this thing through and avoid a blackout of our channels.”

Ergen also indicated that if they can’t make a deal, then they won’t.

“It’s great negotiating because it’s forcing us to think about what the future looks like and obviously it has to be a fair deal for Disney,” said Ergen, “and it has to be a fair deal for our customers.”

A spokesperson for Disney said Iger’s recent comments speak to their position, and offered no further comment. Representatives of Dish did not return calls.