It’s been about seven months since Dish Network let its carriage deal for 16 Fox regional sports networks expire, and the satellite giant’s founder and chairman Charlie Ergen told analysts Wednesday the decision to drop the channels was one of simple math.
Dish dropped 16 Fox Sports RSNs in July after then-owner The Walt Disney Co., allegedly asked for exorbitant carriage fees for the channels. Disney sold the RSNs to Sinclair Broadcast Group in August, but the channels have yet to return to the satellite company’s customers.
In the meantime, Dish has seen a dramatic reduction in satellite TV customer losses over the past few quarters, apparently a sign that the absence of the sports channels, once thought to be a necessity for any pay TV distributor, aren’t quite as essential as previously believed.
Dish lost about 100,000 satellite TV customers in Q4, compared to a loss of 381,000 in the prior year. In the third quarter, losses improved to 66,000 compared to a loss of 367,000 in the previous year.
On a conference call with analysts to discuss Q4 results, Ergen said Dish decided to drop the RSNs because the numbers just didn’t add up.
“Everything we do here is somewhat mathematical,” Ergen said, adding that the company knows what its customers watch and don’t watch, and compares that to the cost of programming.
Programmers are locked in an endless loop of demanding higher and higher fee increases, regardless of whether consumers are actually watching their content.
“What we see is the exact opposite, which is people are watching less,” Ergen said. “And we would say your price should go down if people are watching less.”
Ergen said once a sports network is unavailable, die-hard fans usually find an alternative quickly, by either dropping their existing pay TV distributor or finding another way to access the programming. But once that customer is gone, it makes little sense spending more money — perhaps in the form of increased carriage fees — to get them back.
“The math was clear that the kind of offer we had from the Disney folks at the time our contract was up was not even close to something that made sense for us,” Ergen said.
LightShed Partners principal Rich Greenfield estimated in a blog posting that Dish is saving about $400 million annually by not carrying the Sinclair RSNs. In contrast, it has lost about 166,000 satellite TV subscribers since July, accounting for $40 million in lost cash flow. To Greenfield, the trade-off is obvious.
Asked if the math around the Sinclair RSNs was too hard, Ergen said it was fairly simple.
“The math is easy,“ he said. “We know what it’s worth and it’s worth less today than it was last year.”
Ergen also addressed the possibility of a merger between Dish and the largest satellite company in the country, DirecTV. Although there could be regulatory hurdles around such a union, Ergen said given the current state of the pay TV business, such a union is “inevitable.”
“The growth in TV is not coming from linear,” Ergen said. “The regulatory environment usually is behind the marketplace, but I think that becomes increasingly likely that [a merger] makes logical sense.”