UPDATE 1-SpongeBob blackout looms for DirecTV subscribers

Tue Jul 10, 2012 11:26am EDT

* Viacom, DirecTV latest companies in carriage fee dispute
    * Potential blackout follows Dish's dropping AMC Networks


    By Jennifer Saba
    July 10 (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. [ID:nL2E8I125C}
    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 Mike
White wants to go to war with Viacom and make the same mistake
[Dish Chairman] Charlie Ergen made 8 years ago. Hard to imagine
DirecTV without Nick and Nick Jr.," Greenfield wrote in a blog
post early Tuesday.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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