The logo of Home Box Office Inc. (HBO) is seen on the exhibit floor during the National Cable and Telecommunications Association (NCTA) Cable Show in Washington, D.C., U.S. (Photographer: Andrew Harrer/Bloomberg)

HBO Gets First Blackout Ever After Channels Pulled at Dish

(Bloomberg) -- AT&T Inc.’s HBO and Cinemax programs were pulled from Dish Network Corp.’s satellite service after the companies failed to reach a new distribution agreement, setting up a real-life “Game of Thrones” between two of the biggest players in pay TV.

It is the first time in HBO’s more than four-decade history that programming has been blocked at a distribution partner over a contract dispute, according to AT&T, which acquired the premium cable network as part of its June $85 billion acquisition of Time Warner.

Dish opposed the Time Warner deal and had concerns about excess leverage in programming discussions -- a risk that the U.S. Justice Department warned about when it tried to stop the takeover.

The satellite-TV provider said the channels went dark at midnight Wednesday for its customers and subscribers of its Sling TV online service. The dispute is over demands by AT&T’s WarnerMedia that Dish pay for a guaranteed number of subscribers, regardless of how many consumers actually subscribe to HBO, Dish said. About 2.5 million of Dish’s 13 million customers subscribe to HBO.

Ruling Appealed

Dish made the move as the Justice Department is trying to appeal a federal court ruling that allowed AT&T, the largest TV service provider, to purchase Time Warner -- a business that was renamed WarnerMedia after the deal.

While seeking takeover approval, AT&T had offered to not pull content as part of contract negotiations, though that applied only to Turner shows and not HBO. In its lawsuit to block the AT&T takeover of Time Warner, the Justice Department dismissed the proposal as a flawed remedy that has no oversight and expires after seven years.

On Thursday, the department pointed to the dispute as a sign it was right about the deal.

“This behavior, unfortunately, is consistent with what the Department of Justice predicted would result from this merger,” it said in a statement. “We are hopeful the court of appeals will correct the errors of the district court.”

Dish has been particularly aggressive lately in negotiations with programmers. Because of a contract dispute, Spanish-language network Univision hasn’t been carried on Dish for several months, costing both companies millions of dollars in subscriber fees.

“It seems to be their practice to do this to almost everybody,” Simon Sutton, HBO’s chief revenue officer, said of Dish in an interview Thursday. “We did offer them an extension on the current deal terms, and they rejected that. We have made them proposals with better terms than the current deal, and they have not agreed to any of those. This has nothing to do with AT&T -- this is purely a dispute on carriage terms.”

Pricing Pressure

Dish says the blackout is a sign that media consolidation will put more pricing pressure on TV distributors.

“This comes close on heels of the closing of AT&T’s acquisition of Time Warner and it exhibits the sort of behavior some of us in the industry were concerned about. It harms the industry and consumers,’’ said Andy LeCuyer, Dish’s senior vice president of programming. “We had been in discussions prior to this, and we offered them an extension.’’

The dispute didn’t faze Dish investors, who sent the shares up 3 percent to $31.66 in New York on Thursday. The company reports its third-quarter earnings next Wednesday. AT&T shares were little changed.

Arbitration Sought

Dish said it would like to bring in arbitration to settle the differences and that HBO customers will not be billed during the blackout.

“Arbitration would force both companies to reach a fair outcome, while keeping the channels up,’’ LeCuyer said.

Sutton said Dish subscribers can get HBO online through HBO Now and via Amazon, Hulu and other TV providers. But, he added, the blackout on Dish “will be vexing to us. We’d much rather have kept the Dish subscribers.”

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