Carrier Evolution

Dish Network, which has been engaged in a contract dispute with AMC Networks, appears ready to drop AMC from the Dish line-up, giving AMC’s channel positions away to HDNet Movies. That unusual move illustrates the growing tensions within the video subscription business between distributors and content owners.

Though cable, satellite and telco TV distributors often risk consumer ire over monthly bills that almost routinely grow every year, faster than the overall rate of inflation, distributors maintain, not without reason, that such price increases are driven by higher carriage fees paid to the programming networks.

By its own estimates, about 41 percent of Time Warner Cable operating expense is content acquisition fees. About 57 percent of on-going cost is all other operating cost, including network operations, marketing, customer service and other overhead.

Tensions will continue to grow as distributors face ever-higher costs at a time when more customers seem to be refusing to take the services. Though cord cutters who drop service are a concern, some think the bigger problem is the apparently-growing percentage of younger people who never have bought any video service, and say they do not want to do so.

All that occurs against the backdrop of a growing variety of online video alternatives. Though there has been no major breakdown of the system, every passing day increases all the background factors that could make online delivery of a growing range of video entertainment products feasible in a “direct to customer” manner that obviates the need for consumers to buy a video service from a traditional distributor.

As distributors struggle to control the monthly cost of service, programming costs are a major issue.

AT&T also is engaged with contract negotiations with AMC, and some believe AT&T could also opt to drop AMC. Dish and AT&T have a combined 18 million subscribers. To be sure, contract disputes over per-subscriber carriage fees are not unusual. What is unusual is for talks to fail completely.

Such occurrences are not completely unheard of, though. Hallmark Channel, one of two channels owned by Crown Media Holdings, no longer is carried on AT&T’s U-verse service, since a 2010 rate dispute.

In 2010, Dish permanently dropped Madison Square Garden Co.’sMSG, which airs New York sports games, and the Fuse music channel. Since late last year, Al Gore’s Current TV has had to meet certain minimum audience thresholds every quarter or risk being dropped by Time Warner Cable.

AT&T might be willing to drop AMC as well. As a rule, it is the smaller, lightly-viewed channels not owned by major content providers, such as Disney, that face the greatest risk of being dropped. Disney has more leverage since it owns very-popular networks such as ESPN, and often can bundle access to ESPN with other lesser-viewed networks it also offers. Smaller networks do not have that leverage.