Why CBS went dark on Dish: it’s all about the internet

After weeks of threats, CBS followed through late Friday afternoon and took its stations off Dish Network. Dish subscribers in 14 markets around the country, including San Francisco, Los Angeles and New York, won’t be able to watch any more CBS programming until the two companies reach an agreement on a new contract.

The blackout not only cuts off popular CBS shows like NCIS and the Big Bang Theory, but also the network’s sports coverage, including NFL and SEC football games. In some markets, viewers are also losing access to the CW network as well as Showtime.

A CBS spokesperson confirmed the blackout, sending out a statement that reads in part:

“What CBS seeks is appropriate compensation for the most-watched television network with the most popular content in the world, as well as terms that reflect the developing digital marketplace. We hope that we can reach an agreement very soon so we can all get back to the business of providing the best entertainment, news and sports to the Dish customers we both serve.”

Dish responded with a statement of its own:

“We are disappointed that CBS has chosen to black out their local channels, but remain optimistic that the channels will return quickly as both sides are continuing to work tonight to finalize an agreement.”

The move comes after months of contractual back-and-forth that largely mirrors the many retransmission and carriage fee fights we have seen in the past. On the surface, these fights always follow a very simple script: Broadcast and cable networks want more money in exchange for their programming, and pay TV operators aren’t willing to pay up. Both sides often try to enlist the public with on-air and online campaigns. Increasingly, the back-and-forth leads to blackouts, which inevitably result in the TV service operator giving in and agreeing to pay more.

But the dispute between CBS and Dish is also a good example for why this isn’t just about corporate haggling. At the core, this dispute is all about the internet.

Dish wants more rights, CBS more dough

That’s in part because Dish doesn’t just want CBS to renew its contract for a few more years. The satellite TV operator also wants rights to carry CBS on its Nutv online TV service, which Dish intends to launch before the end of the year. Dish already has announced deals with Disney/ABC, Scripps and A&E networks, and it is likely going to get access to NBC’s programming thanks to the Comcast merger conditions.

Dish has said that it wants to target cord cutters with its online service, and the company is looking to compile an affordable bundle of live and on-demand programming for $30 to $40 per month. Dish was able to strike its Disney deal in part because it used its Hopper DVR as a bargaining chip, promising to curtail ad skipping and monetize recorded shows in exchange for access to online rights.

But it looks like CBS may not be playing ball. The broadcaster recently launched its own online video service called CBS All Access, which combines a live feed of its network with access to on-demand programming. CBS is charging All Access subscribers $5.99 a month. The network was getting just $0.54 per subscriber on average from TV service providers when it signed its last deal with Dish in early 2012, according to Reuters, and has reportedly been looking to bump this to $2 per subscriber in recent contract negotiations.

Advertisers and audiences are moving online

These significant price increases also have something to do with the internet, albeit on a different level. TV networks have been asking for more money for their channels partly because their other major revenue stream is starting to slow down. Advertisers have for some time been wary of TV viewers skipping over their ads with DVRs as well as moving away from traditional TV to new online services. Now, we are starting to see some of them shift their money away from TV and towards the internet as well.

This trend has become especially obvious this year, with companies like Time Warner and Comcast reporting ad revenue for their networks being flat, or in some cases even declining over the most recent quarter, according to a recent Wall Street Journal report. And big advertisers are getting more vocal about shifting priorities. Allstate, for example, plans to move 20 percent of its ad dollars from TV to the internet by 2015, which Journal cited as part of mounting evidence for a “structural slowdown.”

The irony is that advertisers don’t make these decisions in a vacuum; they’re just following their audience.

While internet usage, and even online video viewing, was long seen as complementary to traditional TV consumption, there are now signs that the time spent watching traditional TV is actually declining. Recent numbers from Nielsen show that Americans on average watched seven hours less traditional TV per month during the most recent quarter than a year ago.

So why would networks want more money for programming that is attracting fewer eyeballs, you might ask? One simple answer is: because they can – for now, anyway. Networks aren’t oblivious to the changing world around them, and they are trying to maximize their value while they’re the strongest. That means that we are likely going to see a lot more blackouts like these ones ahead.

For that, you can blame the internet. Or, you know, just go and watch something online.

This post was updated at 4:40pm with a statement from CBS, and at 7:15pm with a statement from Dish.