Dish Network could drop CNN from lineup for good

Dish Network chairman: 'Twenty years ago, CNN was a must-have channel, but it's not a top 10 network anymore'

Dish Network is prepared to permanently unplug a pillar of cable television — CNN, the pioneering 24-hour news network whose fortunes have faded.

The satellite giant's 14 million subscribers haven't been able to watch several Turner Broadcasting channels, including CNN, Cartoon Network and Turner Classic Movies, because of a contract dispute. Those channels might not come back any time soon.

Dish Chairman Charlie Ergen warned Tuesday that pay-TV providers must be more selective of the channels they carry amid rising programming costs. He painted a stark portrait of a survival-of-the-fittest mentality that is reshaping the television industry, particularly as competition from Internet outlets intensifies.

"Twenty years ago, CNN was a must-have channel, but it's not a top 10 network anymore ... unless they find the plane, the Malaysian plane," Ergen said on a conference call, making a jab at CNN's seemingly round-the-clock coverage last spring of missing Malaysian Airlines Flight 370.

Ergen said it would have been a "disaster" just a decade ago to remove CNN just before a big election. However, he said there have been few subscriber losses after the channel's removal because viewers now have plenty of sources for news.

Turner Broadcasting, a division of Time Warner Inc., declined to comment.

Contract battles have escalated in the last few years, especially as Dish and others struggle to hold the line on programming costs. They are fighting to retain customers who are tired of ever-rising cable bills.

Dish lost 12,000 pay-TV customers during the third quarter. The company has been particularly aggressive in its negotiations with programmers such as Turner because the satellite operator is facing increased competition from cable and telephone companies. Rivals such as Verizon and AT&T have had success enticing away customers with bundled packages that emphasize high-speed Internet.

So, Dish has tried to manage its costs to undercut competitors.

"The world is changing, and some people are going to change with it," Ergen told analysts after the company reported weaker-than-expected third-quarter results. "And some people are going to be fast followers, and some people are just going to figure it out after somebody tells them what they should be doing."

After years of stability in the television business and fat profits for the media companies that own cable channels, changes to the economic model have accelerated this year.

Weaker cable channels could become endangered species as the industry adapts to shifts in audience behavior, brought on by popular entertainment alternatives such as Netflix, and YouTube.

"It used to be that the TV was the only place where you could watch content, but that's changing because of technology, and changing very quickly," said Dave Otten, chief executive of JW Player, a New York start-up that enables video streaming. "This will put a lot of older cable channels at risk over time."

For instance, St. Louis pay-TV provider Suddenlink Communications dropped Viacom channels last month. The company blamed the move on Viacom demanding too high a price for its MTV, Nickelodeon, Comedy Central and TV Land channels, which Suddenlink said were no longer must-haves.

DirecTV and AMC Networks have been waging a behind-the-scenes battle that exploded into view last weekend. AMC warned viewers of "The Walking Dead" that they might miss out on the series' zombie action next year if the two companies couldn't agree on a deal. DirecTV's contract with AMC Networks expires at year's end.

And this year, much of Los Angeles went without watching the Dodgers' regular season baseball. Cable and satellite providers, including Dish, DirecTV and Charter Communications, refused to pay the price the Dodgers and distribution partner Time Warner Cable were demanding.

Carrying the channel would cost distributors about $4.50 per month per subscriber household in Los Angeles, according to consulting firm SNL Kagan.

In contrast, a New York Yankees cable channel, now majority owned by 21st Century Fox, is sold to distributors for about $3.60 a month per subscriber household. And, unlike the Dodgers' SportsNet LA, the Yankees' channel also carries games of a second professional team, the Brooklyn Nets.

"There is no way the Dodgers are worth more than the Yankees," Ergen said, noting SportsNet LA was overpriced even in the field of high-priced sports channels.

Ergen said it wasn't Dish's problem "if somebody pays too much for the rights, and then comes in and says, 'We have to cover our rights fee,'" Ergen said. "We have to make hard choices with real economics and math."

The Dish chairman has long been something of a maverick, unafraid to break from the industry pack in an effort to try to gain a competitive advantage.

Dish, for example, is preparing a low-cost package of channels streamed over the Internet. The offering would be a "skinny package," with just a few dozen channels, including ESPN, to try to attract young adults who currently do not subscribe to pay-TV. The service, which is expected to launch by year's end, would cost subscribers about $30 a month.

Veteran cable analyst Craig Moffett said the future of television might not look like some had predicted.

"People once envisioned an a la carte model where individual channels were sold one by one, but that's not what's happening," said Moffett, co-founder of research firm MoffettNathanson.

Instead, he said, distributors such as Dish and Suddenlink are making all-or-nothing choices, which could jeopardize the economics of entire media companies. Such decisions, Moffett said, probably will favor programmers with sports such as Walt Disney Co., which has ESPN.

"Nobody can force Disney to unbundle ESPN from the Disney Channel," Moffett said. "But people are starting to treat entire media conglomerates as pick-and-choose options. Soon whole companies are going to be off the programming menu."

Dish shares closed at $63.26 on Tuesday, down 55 cents.

The Englewood, Co., company's third-quarter profit fell to $146 million, or 31 cents a share, compared with $315 million, or 68 cents a share, in the previous-year period. Analysts had predicted earnings of 39 cents a share. Revenue climbed 5% to $3.68 billion. Dish said it added 28,000 Internet subscribers, but that was short of expectations.

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