SpongeBob blackout looms for DirecTV subscribers

Tue Jul 10, 2012 4:07pm EDT

Michael White, CEO of DirecTV, speaks during the Reuters Media and Technology Summit in New York, June 11, 2012. REUTERS/Keith Bedford

Michael White, CEO of DirecTV, speaks during the Reuters Media and Technology Summit in New York, June 11, 2012.

Credit: Reuters/Keith Bedford

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(Reuters) - DirecTV customers may not see SpongeBob, Snooki or Jon Stewart after midnight on Tuesday because of a heated impasse taking place between the largest U.S. satellite TV provider and Viacom Inc, the company behind the popular cartoon, reality series and political talk show.

In a blog post on Viacom's website, spokesman Mark Jafar wrote that despite Viacom's "best efforts" DirecTV rejected proposals to renew their contract. Nearly 20 million DirecTV customers will not have access to 26 Viacom channels including MTV and Nickelodeon if a new deal isn't struck by midnight Tuesday.

The stand off is the latest saga taking place between media companies and cable and satellite TV providers over the cost of content. These providers pay a fee to media companies that allows them to carry channels such as MTV. Programming is the single biggest cost for distributors and in recent years they have taken a hard line against what they view as unreasonable "carriage fee" increases by content companies like Viacom.

On July 1, AMC Networks, the company behind "Breaking Bad," "The Walking Dead," and "Mad Men" was removed from the Dish Network after the two companies could not reach a new contract.

The possibility of DirecTV dropping Viacom's networks was foreshadowed in a mid-June note by Bernstein Research analyst Todd Juenger.

Citing falling ratings at Nickelodeon and other Viacom networks, Juenger wrote, "We believe it is no longer inconceivable that a distributor would drop Viacom, or at least engage in a public battle with them over price increases."

Viacom is in the process of negotiating a new deal with DirecTV to replace its current seven year contract after it expires. Viacom, controlled by billionaire Sumner Redstone, described the contract as "ancient by the standards of the ever-evolving media industry - which means that DirecTV has enjoyed way below market rates for Viacom's networks for a very long time."

DirecTV said that Viacom "now insists" to be paid 30 percent more -- or about a billion extra dollars -- for the same programming.

"If Viacom wants so much more, then we believe your family needs to be able to choose which Viacom networks you want to pay to keep and which ones you don't," DirecTV said on a question and answer section on its website.

DirecTV is alluding to a debate currently raging among content owners and buyers about the ability to cherry pick channels. As it stands now, content providers typically package all of their channels together -- known in the industry as "bundling" -- rather than let customers choose the ones they want to watch.

"To be clear, we have offered Viacom increased fees for their networks going forward; we just can't afford the extreme increases they are asking for," DirecTV said.

This is not the first time a distributor has threatened to black out Viacom's channels due to a contract dispute. In 2004, Dish actually dropped Viacom cable networks after the two sides failed to reach agreement on a new distribution deal. But, citing the popularity of Viacom's channels, BTIG analyst Richard Greenfield noted the black out only lasted "for about 46 hours before Dish caved to Viacom's demands."

"It will be interesting to see whether DirecTV's [CEO] Mike White wants to go to war with Viacom and make the same mistake Charlie Ergen made 8 years ago. Hard to imagine DirecTV without Nick and Nick Jr.," Greenfield wrote in a blog post early Tuesday.

(Reporting By Jennifer Saba; Editing by Peter Lauria, Sofina Mirza-Reid and Andrew Hay)

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Comments (3)
mixup wrote:
Hopefully the black-out is extended to the Faux News channel.

Jul 10, 2012 11:02am EDT  --  Report as abuse
RobKluver wrote:
Went to check out what my kids were watching today, I hear spongebob BUT there are two scrolling messages across the screen. 1 of them from Viacom and one from DirectTV.

It probably is bad business for these two companies to have this fight on the air in front of my kids who have no clue why they can’t see the show without these scrolling banners in the way.

I did a bit of research and I find out the following that you should all understand right now:

DIRECTV Will NOT DROP any of these channels.
IF they are lost it will be VIACOM who has dropped them by turning off or blanking the feeds it provides DirecTV for distribution.

I would expect after seeing today’s tactics by both companies, some sort of combative messages will likely appear on these channels.

Here is the list of Viacom owned channels:
The most popular music channels of course…
MTV Networks (All MTV channels)

The most popular kids programming:
All Nickelodeon channels

and these popular channels…
Comedy Central

Will they stay or will they go? We shall all know more tomorrow most likely. I think its way too early for anyone decide to drop DirecTV. I am unhappy as many of you are that they put their customers in the middle of this battle in such a public way. However, I would have been quite pissed if we lost these channels without any notice whatsoever.

We will not know the outcome probably for several days if DirecTV and Viacom will reach an agreement and what impact that may have on our service and our bill.

If the Viacom channels are lost to DirecTV, it will definitely hurt their business, and on the other side Viacom as well will miss out completely on all earnings it receives from DirecTV subscribers. This is a double edged sword no matter how you slice it.

Personally, I doubt either company will permanently allow an impass to continue, but I could be wrong. DirecTV would suffer unimaginable losses if they lose these channels, and I would expect existing subscribers to demand a reduction in their package rates to compensate for the loss of channels. Viacom will lose every cent they make from DirecTV subscribers as well. I do not think either company wants to experience such losses.

Viacom should understand that DirectTV has a lot of subscribers and is growing every day. That means that Viacom will earn more as DirecTV increases its number of subscribers. If they must raise prices, 30% is much too large a figure, especially in today’s economy. A 5% increase would substantially boost their earnings. I propose that both DirecTV and Viacom agree to a 5% increase now for a period of 1-2 years minimum, remove these messages from the channels and let us continue to enjoy and take the battle out of the public arena today, and give both companies more time to work out a longer term equitable agreement.

Should they fail to do so, both companies stand to lose an enormous amount of revenue. Stop being so combative. Viacom you ARE making money now with DirecTV, why kill that? DirecTV understand that you have to periodically renegotiate contracts, and that you will have to make adjustments every now and then. The public battle is hurting both of your reputations, and if these channels go offline tomorrow – you will both feel the pain, I can guarantee you that.

DirecTV subscribers, we pay a good amount of money for our packages and we should expect to always keep the programming we pay for. If we lose channels we enjoy over the next week or two, it is our right as consumers to #1 expect compensation in terms of a refund or reduced package rate due to these possible channel losses and #2 we have the right to suspend or cancel our service and move to an alternate provider.

For everyone involved: Good luck. I am personally confident that some sort of an agreement will be reached. If I am wrong, it will not be the first time, but each of us will be negatively impacted, subscribers, Viacom and DirecTV alike. So please, squash this public battle today, act now to extend negotiations at a minimum for at least 12-24 months.

Jul 10, 2012 2:47pm EDT  --  Report as abuse
diluded0000 wrote:
Dear Direct-TV,

If I have to do without some channels I like for a while, so I ultimately don’t have to pay for channels I don’t want, that is fine. Do what you need to do.

A Subscriber

Jul 10, 2012 3:35pm EDT  --  Report as abuse
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