- Share this article on Facebook
- Share this article on Twitter
- Share this article on Flipboard
- Share this article on Email
- Show additional share options
- Share this article on Linkedin
- Share this article on Pinit
- Share this article on Reddit
- Share this article on Tumblr
- Share this article on Whatsapp
- Share this article on Print
- Share this article on Comment
The standoff between Viacom and DirecTV could go on for some time in part because the owner of Comedy Central, MTV and Nickelodeon faces some special challenges in the nasty nine-day tussle over carriage fees.
Typically, these battles end when the cable or satellite distributor responds to pressure from customers who want their favorite shows back on the air — one reason the content provider usually has the edge in these tiffs.
But as Jon Stewart put it Monday on Comedy Central’s The Daily Show, not only are the Viacom networks and shows not indispensible, some can be easily replaced: “You’re giving people a chance to remember there’s other entertainment in the world,” he said.
Viacom wants DirecTV to increase its fees by about 30 percent — roughly equal to what it gets from other distributors like Dish and Time Warner Cable. DirecTV stopped airing Viacom’s channels at 9 p.m. PDT on July 10.
Analysts note that Viacom has no local stations or major sports programming to use as leverage. A blackout of the MSG Network in the New York area in February ended after just one day, with Time Warner feeling the heat to make New York Knicks games available just as Jeremy Lin was electrifying fans. And a 2003 dispute between the Yes Network and Cablevision ended after the cable operator was pressured to air New York Yankees baseball.
Viacom does have popular networks and shows, but in many ways, competitors can match those offerings. With Nickelodeon off the air, DirecTV has moved to satisfy young viewers by repackaging and expanding its kids programming. It suddenly added Disney Jr., which targets the same preschool crowd that watches Nickelodeon during the day.
Some analysts argue Viacom also has weakened its position by selling past episodes of shows, including kids programs, to Netflix and other streaming services, giving families an alternative when their favorite channel goes dark.
And at a time when Nickelodeon ratings are down, it can’t be easy for Viacom to do without DirecTV’s 20 million-plus subscribers.
In a report issued Monday, Todd Juenger and Craig Moffett of Bernstein Research suggested that digital rights are at the heart of the issue. They note that after DirecTV complained the same shows it was paying to air were free on the Internet, Viacom pulled The Daily Show and others off the web. (On Monday, Viacom restored The Daily Show and The Colbert Report online.)
Viacom has been among the most aggressive of the major content companies in offering its shows online and selling them to streaming services. The Bernstein report raises the possibility that the way to settle the DirecTV disagreement is through digital distribution.
“We expect that a settlement will likely include lots of digital rights granted to DirecTV,” says the report, “and likely also a limitation of the availability of those rights though other (online) sources.”
Says the Bernstein report: “Viacom’s online withdrawal has alienated many of their own would-be online viewers. Worse, it has self-evidently bolstered DirecTV’s argument that the very availability of that programming undermines Viacom’s traditional pay TV value proposition (or else why would they have had to pull it). “
Bernstein estimates that DirecTV now pays Viacom about $500 million a year in carriage fees, or about $2.06 a month per subscriber. It notes that total is below Viacom’s industrywide average price of about $2.50 per sub. So, this is seen as Viacom’s attempt to get DirecTV in line with others.
Also, if DirecTV gets to pay less, Viacom might have to reduce the fee it charges to other system operators because of “favored nations” clauses in those distributors’ contracts.
On the other side, there are reports that DirecTV has a favored nations pact with Comcast/NBCUniversal and possibly others, so whatever increases it gives Viacom it will have to match for those other companies, making the cost of a settlement much higher.
Another sore point: DirecTV has refused to carry the Epix pay TV channel, which Viacom partially owns and which serves as the primary pay platform for movies from its Paramount Pictures division. In 2009, DirecTV said as Epix was launching: “We think there are enough (pay channels) out there already. We don’t see the value of adding another movie channel.”
Viacom might be demanding that DirecTV reconsider that position, a source suggests.
Heated carriage fights were rare until two or three years ago, when the owners of the channels and programs decided they wanted to be paid in cash for their content rather than make barter deals for carriage of other, less-popular channels.
A factor that has provided leverage for Viacom and other big companies is that since the mid-1990s, they have consolidated into six giant, global conglomerates that dominate the media landscape: Viacom and its former sibling CBS, Disney/ABC, Time Warner/Turner, Comcast/NBCUniversal and Sony. That works against smaller players like AMC Networks, Tennis Channel and Bloomberg.
AMC Networks is now in a standoff with Dish Network, which has pulled the flagship AMC channel with popular, critical hits like Mad Men and Breaking Bad rather than pay higher rates.
Cable and satellite competitors know there are limits to what costs they can pass on to consumers in the form of subscriber increases without hurting overall business. With no a la carte options available, viewers fed up with paying for networks they never watch can switch to online providers.
Even with the growth of multiplatform media, or perhaps because of it, live and local content has become more valuable. That is why the highest subscriber fees in cable are paid to sports juggernaut ESPN, which gets about $4.69 a month per subscriber.
Disney is able to use ESPN as leverage to get other channels carried and paid for at strong levels. The company also has very loyal followings for its children’s channels; the main ones don’t carry advertising, which pleases parents.
One analyst noted that if Viacom and CBS were still one company, the battle with DirecTV would be much different. CBS has local stations that carry sports like NFL games. “Another reason,” says the analyst, “why it was dumb to split those companies up.”
It’s something News Corp. might want to consider as it splits its company between media and print properties. What looks like a smart financial transaction can have unforeseen consequences down the road.
Or as Stewart asked, “Remember Oprah?” He was referring to how quickly the public found alternatives after Oprah Winfrey quit her syndicated show to start her own (little-seen) cable channel.
Sign up for THR news straight to your inbox every day