Written by Brett L. Sappington, Director of Research

While content brinksmanship between pay-TV carriers and content owners over carriage fees is nothing new. The recent conflicts between DISH and AMC and between DirecTV and Viacom appear to have taken the face-off to new heights...though perhaps new "depths" might be a more accurate statement from a consumer perspective.

The networks maintain that their current approach to channel carriage fees is good for consumers. By requiring popular channels be bundled with less popular ones, the content folks can fund more content overall and provide greater choice for consumers. After all, who knows when a show on a less-watched network will go viral (raise your hands all of you folks watching 19 Kids and Counting).

Pay-TV providers ask the reasonable question, "Why are we paying for loads of channels that nobody watches?" I ask myself that same question each time I receive my monthly bill.

Looking at the latest standoff makes me wonder if we are reaching a tipping point in carriage fees. In a market where operators are competing with OTT services for any premium channel packages and VOD revenues, there has to be a theoretical maximum cost beyond which pay TV providers cannot either absorb additional cost or pass the costs on to customers.

Over the past couple of years, we have seen operators either drop channels (e.g. AT&T and The Hallmark Channel or Verizon and Funimation) or move channels to higher tier packages in order to lower their cost profiles. DISH Networks' moves with AMC and DirecTV's heavy hints at a la carte pricing seem symptomatic of that same disease.

Ultimately, pay TV providers will be forced into increasingly tougher decisions as to which channels that they can afford to keep as part of their portfolio. In the longer term, the smaller content owners are likley the ones to get squeezed since the larger networks will have the negotiating power to command the lion's share of carriage fees.

The wild card in all of this will ultimately be OTT. AMC and Viacom are currently using online delivery as a stick to beat the satellite operators (and the occasional subscriber in Viacom's case). However, given the massive difference in revenues between pay TV carriage fees and online video revenues, the networks are unlikely to move valuable content online for long without an adequate return.

As online video usage increases and smaller networks get squeezed out, how many content owners will consider OTT partnerships for their programming? Perhaps Netflix and YouTube will not have to create all of their own original content after all. Perhaps, in time, the content will simply come to them.

Twitter ID: @BrettsView