Analysts: Watch out for Dish's OTT ambitions, but business model is unclear

LOS ANGELES--The cable industry is facing an onslaught of new competition from over-the-top players like Amazon's (NASDAQ: AMZN) Fire TV, Netflix (NASDAQ: NFLX) and more. But the biggest threat is likely coming from Dish Network (NASDAQ: DISH), which earlier this year inked a carriage deal with Walt Disney (NYSE: DIS), said a group of financial analysts speaking at The Cable Show here.

The deal makes Dish the first pay-TV provider to land rights to deliver ESPN, Disney Channel and other networks through an OTT service.  Terms of the deal include prohibiting subscribers from skipping commercials from ABC with Dish's Hopper DVR.

"What Dish was able to get out of Disney is unique," said Benjamin Swinburne, managing director with Morgan Stanley.  "I don't look at Netflix as a competitor to pay-TV. But an OTT-rich bundle of services at a lower price point can be a game changer."

However, others are less bullish. According to Jessica Reif Cohen, managing director with Bank of America Merrill Lynch, the Dish-Disney deal is structured in a way that makes it impossible for two people to watch the same channel in different rooms.  "Is this going to be limited to single people or single person dwellings?"

Aside from Dish, the analysts said that many of the new OTT players have business models that are uncertain. "Many are struggling to find a business model," said Craig Moffett, partner and senior analyst with MoffettNathanson. Specifically, Moffett said that OnCue, which Verizon (NYSE: VZ) acquired from Intel's Media division, was envisioned as a virtual MSO. Moffett said that before Verizon acquired OnCue, the company had a cost disadvantage in programming procurement. In addition, OnCue is also expected to have transport costs for usage-based pricing.  "They have a product that is like cable, but has latency and is 20 percent more expensive," Moffett said.  Whether OnCue will face those same disadvantages as part of Verizon's business is unclear.  Verizon has indicated it plans to integrate OnCue with its FiOS platform.

Interestingly, when asked about any competitive threat posed by Google, Moffett said that he doesn't think Google has any ambition to be a network provider.  "They [Google] understood 10 years ago that cable was going to become the only high-capacity infrastructure.  Google recognized that the only way to change that is to create a second network," Moffett said. However, Google doesn't really want to be in the network business. Instead, Moffett said that their goal is to build their network in enough places that people realize they can do it and then drive others like AT&T to follow their lead.

That sentiment was echoed by Phil Cusick, managing director of J.P. Morgan. "Google doesn't want to be a telco. All they are is the whip behind companies like AT&T."

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