RPT-Pay-TV distributors no longer seen as lone bad guy in disputes

Thu Jul 19, 2012 8:47am EDT

* Subscribers realize blackouts not just distributors' fault

* Frequency of disputes prompt rethink of 'cable guy' blame

* Viacom says talks with DirecTV have 'broken down'

By Yinka Adegoke and Liana B. Baker

July 18 (Reuters) - It's conventional wisdom that everyone hates their cable and satellite television provider. But is that really the case?

As demonstrated by the latest programming disputes between DirecTV Group and Viacom Inc and between Dish Network Corp and AMC Networks, subscribers appear to be realizing that losing access to their favorite channels isn't necessarily the distributor's fault. Or at least the distributors appear to be doing a better job than the programmers of winning the public relations battle.

Though DirecTV customers have been without MTV, Nickelodeon, Comedy Channel, and other Viacom networks for more than a week now--the longest-ever blackout of Viacom-owned networks--the distributor has only seen a small number of its subscribers cancel service, according to its top programming negotiator, Derek Chang.

Chang told Reuters that his company is sensing a change in the way customers perceive DirecTV's role in bringing shows to consumers.

"They understand there are costs we have to pay to get this programming to them," said Chang.

While Chang said talks with Viacom were "making progress," Viacom said in a blog post Wednesday that they have "broken down" and have "moved backwards significantly and created more obstacles" to an agreement. DirecTV shot back that it did not want to spend an additional half a billion dollars on the movie channel EPIX, which it said was included in a deal that Viacom put on the table.

Ultimately, programming disputes are about money, with distributors usually balking at the size or terms of the price increases they have to pay the programmers, known in industry parlance as "carriage fees." Programmers, for their part, complain of the rising costs to produce the shows that viewers love and that drive subscribers, and thus revenue, to distributors in the first place. After all, there is no value in a distributor that lacks content to distribute.

A Viacom spokesman said, for instance, it had the most watched networks on DirecTV over the course of their previous seven-year deal and is trying to get prices in line with what other distributors pay.

Dish Network Corp subscribers, meanwhile, are missing this summer's most anticipated drama series, "Breaking Bad," because it has blacked out AMC Networks from its systems. And Time Warner Cable Inc customers have lost 15 broadcast stations owned by Hearst Corp in 13 markets.

Cable operators in the past typically bore the brunt of most disputes. But, as a result of the increasing frequency and larger scale with which these so-called carriage disputes have taken place in the last five years, signs are emerging that suggest consumers are starting to rethink their knee-jerk reaction of blaming the 'cable guy' with which they have a relationship.

That's because subscribers are beginning to wise up to the fact that even if they dropped DirecTV for Dish or Time Warner Cable, they could very well run into another blackout with the new distributor.

Time Warner Cable, the second-largest cable operator, started drawing its customers' attention to the futility of switching pay-TV providers in 2008, in a programming fee battle with Walt Disney Co.

"People are beginning to understand that at some point in time their cable or satellite company is going to be involved in a dispute with a program maker," said Time Warner Cable programming chief Melinda Witmer.

Of course that hasn't stopped DirecTV's or Dish's rivals from trying to poach their customers, or Viacom and AMC from encouraging their fans to switch to other providers.

BTIG analyst Rich Greenfield noted that Comcast Corp and Dish are among those currently executing a 'vulture' strategy utilizing advertisements to target DirecTV customers who might be frustrated with missing "Snooki and JWOWW" or "Dora the Explorer."

For its part, Viacom is running regular local radio spots, online display ads and even a full-page ad in the front section of Sunday's New York Times advising DirecTV customers they could switch to other providers that have Viacom's channels.

But poach-or-switch campaigns are losing their effectiveness, said brand consultant Adam Hanft, of Hanft Projects, who worked with Viacom about a decade ago.

"Because there are so many battles, consumers are now less likely to jump and switch because they think it will be settled," said Hanft. "Consumers shrug and say, 'if I switch to Time Warner, they are going to have a fight with someone else.'"

There was some evidence for and against that claim on social media outlets like Twitter and Facebook, where customers expressed their frustration with both DirecTV and Viacom.

One DirecTV customer, Ronnie Sherard, a father of two in Jacksonville, Florida, said his children miss Nickelodeon but have been watching the Disney Channel as well as PBS Sprout as replacements.

"The propaganda campaign put on by Viacom - the slander campaign - is really making me side more to DirecTV because it seems on the business side of it, DirecTV has been more mature about the whole thing," he told Reuters.

Social media are helping distributors like DirecTV spread the word about the role programmers play in network blackouts. But it isn't enough, according to marketing consultant Peter Shankman.

"If you have 100 people tweeting '#DIRECTVHasMyBack,' there might be millions of other people pissed off they can't get their shows because they have DirecTV and that's what they pay for," Shankman said. "If you aren't getting the service you want from DirecTV and you are paying DirecTV, you are going to be pissed at DirecTV."

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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