UPDATE 1-Gannett, Dish dispute could black out channels

* Dish says Gannett wants it to shut down Hopper DVR

* Gannett source says it never asked Dish to disable Hopper

* Source says dispute is over fees, not Hopper

(Adds Gannett source over Hopper's role in dispute, interview with Dish exec)

By Liana B. Baker and Sruthi Ramakrishnan

Oct 5 (Reuters) - Gannett Co Inc and the Dish Network Corp are sparring over fees that could leave Dish customers blacked out from major networks on Sunday in a fight the No. 2 satellite TV provider said involves its controversial DVR, the Hopper.

Dish Network Corp said Gannett has threatened to block its channels in 19 cities if Dish does not block the commercial-skipping feature on its digital video recorders or agree to pay massive penalties.

Dish introduced a DVR called the Hopper earlier this year with an "autohop" function that allows subscribers to skip commercials automatically when they are watching recorded shows.

Dish maintains that the product is something consumers desperately want. But CBS and fellow broadcasters -- Disney's

ABC, Comcast's NBC, and News Corp's FOX -- argue that Dish, led by chairman Charles Ergen, is undermining the networks' key source of revenue: advertising. Gannett owns local TV stations that broadcast NBC, ABC and CBS.

A person at Gannett with direct knowledge of negotiations, who did not want to be named because the discussions are not public, said that while the business implications of the Hopper were part of negotiations, the Hopper is not at the center of the dispute, as Dish is claiming.

"Nothing in the negotiations requires Dish to disable the Hopper," the source said.

The source said the fight is over fees that Dish must pay Gannett for the rights to carry its TV stations, which is also known as a retransmission consent agreement.

Dish's senior vice president for programming, Dave Shull, told Reuters that Gannett "has been very clear that they would like us to reduce the consumer choice by removing the auto hop feature in the Hopper."

He added that Gannett is trying to charge Dish a "significant penalty" to allow customers to use the autohop feature to skip commercials and that Gannett had included these demands in documents.

If Gannett Broadcasting lets the current broadcasting contract expire without renewal, Dish customers in 19 cities including Atlanta, Washington D.C., Denver, Minneapolis, Cleveland, Phoenix and Sacramento would lose various ABC, CBS and NBC-affiliated stations, Dish said in a statement.

"Gannett's demands translate into more than a 300 percent rate increase, which would likely result in higher monthly fees for consumers," Dish said.

Dish says it has offered to pay Gannett market rates, including an increase of more than 200 percent above current rates, and offered to extend the transmission contract during negotiations, which Gannett has refused.

Gannett said in an emailed statement that Gannett Broadcasting has worked hard to reach a fair agreement with Dish, but Dish has refused to reach a fair, market-based deal. A Gannett spokesman declined to comment on the specific fee increases being negotiated.

"If Dish refuses to reach a deal before midnight, Oct. 7, Dish subscribers could lose their local Gannett station and access to some of the year's best programming," Gannett said.

Gannett said it is committed to continue negotiations with Dish till the Oct 7 deadline and that an agreement is possible.

Other cities that could be affected by a blockage are St. Louis, Little Rock in Arkansas, Tampa and Jacksonville in Florida, Macon in Georgia, Bangor and Portland in Maine, Grand Rapids in Michigan, Buffalo in New York, Greensboro in North Carolina, Columbia in South Carolina, and Knoxville in Tennessee, Dish said.

In August, Fox Broadcasting Co asked a court to put a stop to two features on Dish's new digital video recorder that let consumers skip commercials because it is hurting the TV networks' business.

Dish shares were down 0.4 percent to $32.14 in afternoon trading on Friday, while Gannett shares were up 0.8 percent to $18.47.

(Reporting by Liana B. Baker in New York Sruthi Ramakrishnan in Bangalore; Editing by Muralikumar Anantharaman and Tim Dobbyn)

((sruthi.ramakrishnan@thomsonreuters.com)(Within U.S.+1 646 223 8780, outside U.S. +91 80 4135 5800)(Reuters Messaging: sruthi.ramakrishnan.thomsonreuters.com@reuters.net))