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UPDATE 2-Dish eyes Internet TV services in landmark Disney deal

March 4 (Reuters) - Dish Network Corp and Walt Disney Co reached a long-term deal, allowing the No.2 satellite TV provider to carry Disney-owned networks such as ABC and ESPN, and deliver the content outside of a traditional TV subscription.

The deal marks the first time that a U.S. pay-TV operator was given the flexibility by a media company to offer its content over the web via smartphones, tablets and computers.

"The Dish/Disney deal appears to set the stage for a new wave of broadband-delivered video services. Disney has protected "the bundle" but we will soon see the first of many virtual MVPDs," Richard Greenfield, BTIG analyst, said.

The companies said Dish gets the right to stream "linear and video on demand content" from channels such as ABC broadcast stations and cable networks such as Disney Channel and ESPN as part of an internet-delivered IP-based multichannel offering.

Until now, content owners have not granted cable or satellite TV operators the digital rights to sell their shows outside of a pay-TV subscription.

It was "one of the most complex and comprehensive" deals they have ever undertaken, said Anne Sweeney, co-chairman, Disney Media Networks.

While Dish did not give details on what its potential TV subscription over the Internet might look like or cost, there is likely a big market waiting for such a product.

North American consumers will spend $6 billion in 2014 on entertainment from over-the-top services such as Netflix, more than twice what they spent in 2010, according to PwC's annual entertainment and media forecast.

Sony Corp has been working on an Internet TV service that is expected to come out this year. Intel's efforts to launch one was recently bought by Verizon.

LAWSUITS SETTLED

Dish's chairman Charlie Ergen, long seen as a disrupter to the cable TV industry, has talked about the need to suit viewer's changing habits and has acknowledged that a small but growing number of customers are "cutting the cord" or cancelling traditional TV and just subscribing to Internet service.

Ergen had ruffled the feathers of the broadcasters by rolling out a service called "AutoHop" that lets viewers automatically skip commercials on recorded programming on its DVRs, but discontinued the service for ABC programming as part of the deal announced on Monday.

The "AutoHop" service sparked a lawsuit between the two companies. Disney and Dish's programming agreement expired at the end of September, but they averted blackout of Disney's top networks for the satellite provider's 14 million customers.

The deal will result in dismissal of all pending litigation between the two, including disputes over PrimeTime "Anytime" and "AutoHop," the companies said in a statement.

The deal also includes digital rights for mobile apps such as Watch ESPN and Watch ABC. Dish will also carry Fusion, a new English-language news channel aimed at young people and the SEC Network, a soon-to-be college sports network from ESPN.

Dish, like its larger rival DirecTV, does not offer broadband Internet service like cable companies so it has been experimenting with ways to adapt.

DirecTV CEO Mike White has already said the No. 1 satellite operator is working on an "over-the-top" video package to suit niche audiences, such as Hispanic or kids programming, but hasn't given many details on that product yet.

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