Moody’s Investors Service said that the Ninth Circuit Court of Appeals’ upholding of the prior ruling denying an injunction against DISH Network’s AutoHop feature, is favorable to DISH in the short term, but the disruptive nature of the ad-skipping feature may ultimately hurt DISH in the long-run when it faces affiliate agreement renewals with broadcasters.
Says Moody’s in its report: “AutoHop is disruptive to the core revenue model of broadcast and cable television networks, which rely on advertising for over 40-60% of their total revenue. If the feature becomes widespread amongst other pay-TV distributors, networks will not be sufficiently compensated for their
content, the cost of which is currently subsidized by advertising revenue. Therefore, we believe that the networks will likely seek to make up for lost revenue by asking for higher fees than typical in the next round of distribution negotiations, at a time when pay-TV distributors are struggling to contain programming costs which they can no longer pass off to their customers. Or they will seek to limit the use of AutoHop, which will cause any rulings allowing it to become irrelevant.
By disturbing the content distribution eco-system that it is a part of, DISH may end up facing contentious retransmission and distribution negotiations and have to pay higher fees, which may bear a greater cost than the benefit provided by the AutoHop feature. While DISH may seek to improve its subscriber additions and retention in the near term by providing consumer friendly features, if already difficult retransmission negotiations become more challenging, result in higher programming fees and result in more stations temporarily going off DISH’s service, we have concerns that this may hamper its value proposition for customers who prioritize continuous service over disrupted service with extra bells and whistles.”