Viacom Channels Go Dark on DirecTV as Fee Talks Fail
07/11/2012| 10:46am US/Eastern
--Viacom channels went dark overnight for DirecTV subscribers
--No immediate resolution or negotiations known publicly
--Dispute is latest high-level standoff on programming fees
(Adds quote from Viacom CEO, share price and background throughout.)
By William Launder
Viacom Inc. (VIA, VIAB) channels--including Nickelodeon, MTV and Comedy Central--went dark for DirecTV Group Inc. (>> DIRECTV) subscribers overnight after the two sides failed to come to an agreement on programming fees.
The dispute highlights intensifying friction between content companies and pay-TV distributors over the costs of programming, as cheap online-video offerings like Netflix Inc. (>> Netflix, Inc.) provide alternatives to traditional pay-TV packages.
The blackout also comes as Viacom has seen its ratings decline recently for top shows like Nickelodeon's "SpongeBob SquarePants" and MTV's "Jersey Shore." While fee disputes are common in the pay-TV industry, this one is significant because it pits one of the nation's largest cable network owners against the country's second-largest pay-television operator, with about 20 million subscribers.
In Sun Valley, Idaho, where media moguls are meeting at Allen & Co.'s annual conference, Viacom Chief Executive Philippe Dauman told reporters Wednesday morning, "We've done deals with every single U.S. distributor since the last DirecTV deal."
It's "unfortunate," Mr. Dauman said, that consumers are now "unable to enjoy our channels." He said he didn't want to negotiate in public, adding that "we're ready to move forward."
A Viacom spokesman said further negotiations currently weren't scheduled.
In a blog post late Tuesday, Viacom said it had offered DirecTV a "fair deal" on rate increases, amounting "to an increase of only a couple pennies per day, per subscriber."
DirectTV, meanwhile, said in its own statement that it had been "very willing to get a deal done" but criticized what it described as a 30% rate increase--equal to around $1 billion--demanded by Viacom. DirecTV also noted that Viacom was seeking the increase at a time when ratings at many of its top networks are sinking and as it gives away much of its content online.
Viacom has said DirecTV benefited from "way below market rates" in its seven-year-old deal with the content company, a contract that is "ancient by the standards of the ever-evolving media industry." According to Viacom, DirecTV has offered a rate that is lower than Viacom receives from any other TV distributor.
Signs of the dispute emerged publicly this week as both parties attacked each other in blog posts and on affiliated websites, a common tactic in such disputes.
In a carriage fee dispute with Time Warner Cable Inc. (>> Time Warner Cable Inc) in late 2008, Viacom purchased advertising space in major newspapers depicting a crying "Dora the Explorer," and urged subscribers to complain to Time Warner Cable.
Industry executives and analysts have in recent months predicted that Viacom would encounter challenging negotiations like this because of ratings softness. Viacom also has been accused of cannibalizing its own ratings by making shows available via Netflix, a suggestion refuted by the cable-network operator.
DirecTV shares traded 0.3% lower at $48.50, while Viacom's Class B shares traded 0.9% higher at $47.30.
Blackouts are becoming increasingly common as distributors balk at the high rates charged by content companies and face challenges from a soft economy and new forms of competition like online TV.
In another recent example of a standoff over carriage fees, Madison Square Garden Co.'s (>> The Madison Square Garden Co) channels were dropped for Time Warner Cable subscribers in a seven-week spat that ended in February. The companies reached a compromise on rate increases brokered by the New York attorney general.
Satellite TV companies like DirecTV are particularly vulnerable to higher programming fees because they don't have other big businesses like telephone or broadband service to support their earnings.
"The biggest fights you are going to see are likely with the satellite operators, because they are one-trick ponies and it's more material for them to fight," said Vijay Jayant, an analyst with ISI Research.
DirecTV also has taken aim at Viacom's bundling of popular channels with less-watched ones, something that regulators have begun to examine for signs of anticompetitive practices.
"Programmers like Viacom typically won't allow anyone to buy their channels individually, but we hope to change that," DirecTV has said.
Viacom says it has offered rates for individual channels throughout the negotiating process, with discounted rates offered for multiple channels.
-John Jannarone and Shalini Ramachandran contributed to this article.
Write to William Launder at firstname.lastname@example.org