By Ryan Lawler
Dish (NASDAQ:DISH) is the latest company interested in building an Internet TV service, as Bloomberg reported last week that it was in talks with various networks about licensing its content and delivering it over the top. But while an over-the-top live TV service would certainly be a welcome choice among video options, it’s unlikely to be as cheap or as competitive as everyone would like it to be.
Dish isn’t alone in this pursuit: Over the last several years, we’ve heard about tech companies like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) being in discussions with media companies to create their own bundled Internet TV services. Both of those companies backed down, reportedly due to the high cost of putting such a service together, as well as fundamental disagreements over how such an offering would be packaged. I’ve been told that Intel (NASDAQ:INTC) is building an Internet TV service, led by former BBC exec Erik Huggers, but sources say that project has hit delays in recent months.
Of course, Dish has something that none of those tech businesses have — which is actual experience operating a multichannel video business. It’s got existing business relationships with the media companies and knows how to create and market packages of content. That is its entire business, after all. Perhaps more importantly, Dish doesn’t have other lines of business to fall back on — TV is no experiment — which is why going over the top is so important.
According to Bloomberg, Dish is in discussions with MTV and Comedy Central owner Viacom (NASDAQ:VIA), Spanish-language specialist Univision Communications, and Scripps Networks (NYSE:SNI), which is best known for lifestyle channels like Food Network and HGTV. It’s no coincidence that those are the first three companies that Dish is talking to — each has big reasons to embrace the Internet and consider the possibility of being in an over-the-top video package.
In Viacom’s case, it’s facing the possibility of losing its audience, as more and more young people shun cable and turn to the Internet for their video entertainment. MTV has had a bit of a renaissance over recent years, thanks in no small part to shows like Jersey Shore. But it’s facing increasing competition for eyeballs from YouTube and VEVO — where viewers can get more than their share of music videos and youth-oriented programming. Viacom is also seeing its youngest viewers turn to the Internet, as Nick and Nick Jr. are being disrupted by on-demand kids programming on services like Netflix.
Scripps, meanwhile, might be most at risk from a growing number of lifestyle brands and content going straight to consumers on YouTube. While its shows are still popular with DIY homemakers and aspiring chefs, on-demand videos from striivng independent creators are getting a lot of interest. That’s especially true since, unlike live TV, viewers can search for particular content — like a certain recipe or certain home project — rather than hoping for it to someday show up on TV. Also, web video comes at a fraction of the cost HGTV might pay to produce it.
Univision, meanwhile, sees a huge opportunity to capture a growing audience of Hispanic broadband users. In addition to its linear TV channel, the company has also aggressively expanded online with a series of web and mobile web sites targeting those viewers online. It’s also rolled out a ton of local web properties aimed at being the go-to place for Spanish-language content.
One type of content that isn’t included — and you shouldn’t expect to see in any online package — is sports. That’s because sports channels are expensive: ESPN by itself gets about $5 per sub per month from its distributors.
If anything, the online package that Dish is trying to piece together might be as much about getting rid of those sports networks as anything else. Those who won’t cut the cord often cite sports as the reason why. But those who have cut the cord -- who might want to watch broadcast TV but don’t care about sports -- might find a basic cable package that is delivered over the Internet actually attractive.
Delivering an online option is also a way for Dish to diversify, which is something it desperately needs to do. Satellite TV, like pay TV in general, is a mature business. There’s little subscriber growth left, if any, as cord cutting looks like it’s finally actually becoming a thing. Worse, satellite providers don’t have multiple revenue streams from Internet or voice services — although Dish is trying to change that with a satellite broadband offering. Dish is going over the top in part because it has to, because, increasingly, that’s where the viewers are.
Unlike previous attempts, it seems like Dish’s plans to roll out a virtual MSO might actually work, in part because the network infrastructure is actually ready, and in part because the networks are finally ready to consider it. That said, those hoping for a low-cost, high-quality alternative to cable will probably have to keep waiting. Dish might be able to roll out a less expensive package of networks, but it’s unlikely to have the breadth of choice that its satellite packages have.