By Lisa Richwine and Liana B. Baker
SUN VALLEY, Idaho, July 11 The latest and most
high-profile dispute between pay-TV distributors and content
owners over the cost of programming pits DirecTV and
Viacom Inc against each other.
The two companies failed to reach a new contract before a
midnight Tuesday deadline, and as a result Viacom asked DirecTV
to black out Nickelodeon, MTV, Comedy Central and 14 other
Viacom channels for its roughly 20 million subscribers.
The two companies had been in talks over a new contract -
the previous one had been in place for the last seven years -
but could not agree on terms before the Tuesday deadline.
Both DirecTV Chief Executive Mike White and Viacom CEO
Philippe Dauman addressed the standoff with reporters at Allen &
Co's media and technology conference in Sun Valley, Idaho, on
Wednesday. They offered vastly different views of why
negotiations broke down.
"In the last seven years since we did the last DirecTV deal,
we have successfully and peacefully concluded affiliate
agreements with every major distributor in the U.S. We are
prepared to move forward. It's unfortunate consumers for the
first time are not able to enjoy our channels," said Dauman,
adding, "I don't want to negotiate in public."
White, too, expressed sympathy for DirecTV's subscribers,
but he laid the blame for the blackout at Viacom's feet.
"All we are trying to get is a fair deal for our customers
and I'm sorry our customers are being forced into the middle of
this," White said. "We just think we pay a half a billion
dollars a year and a billion dollar increase over five years,
over 30 percent, is not justified by the marketplace or fair
relative to our largest competitors or by their ratings."
White added that he spoke with Dauman at the conference on
For its part, Viacom has said that its stable of networks
account for about 20 percent of all viewing on DirecTV but
currently less than 5 percent of its programming costs.
The dispute sent shares of both companies lower on
Wednesday. DirecTV shares ended down 1.1 percent, or 54 cents,
at $48.15. Viacom's stock fell 0.3 percent, or 13 cents, to
The standoff is the latest 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. (See Breakingviews column )
On July 1, AMC Networks, the company behind shows
such as "Breaking Bad," "The Walking Dead" and "Mad Men," was
removed from the Dish Network after the two companies
failed to reach a new contract.
Similar blackouts have taken place in recent years between
Cablevision and Walt Disney Co's ABC; News Corp
and Cablevision; and News Corp and Dish. In those cases
and most others, a new contract was reached and the networks
were restored within days.
The purchase of television programs is the single biggest
cost for distributors, who have fought back in recent years
against what they consider unreasonable "carriage fee" increases
by content producers like Viacom.
Companies such as Viacom tend to bundle their networks
together, forcing distributors to carry lower-rated networks,
such as Nick Jr., along with more popular channels such as MTV.
This practice has triggered a debate in the industry about
unbundling networks, which would allow customers to choose only
the channels that they want to watch, a practice known in
industry parlance as "a la carte."
"We've made it clear we would be happy to do an a la carte
deal; I don't think that's likely, that decision is in the hands
of Viacom," White said. "A lot of customers ask for a la carte
absolutely, a lot of customers would really prefer to buy the
channels they watch and not the others, but the contracts we are
subject to by the media companies typically tie content
The possibility of DirecTV dropping Viacom's networks was
raised in a mid-June note by Bernstein Research analyst Todd
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."
Despite declining ratings, Nickelodeon still ranks as the
top-rated cable network in the country, based on total day
Viacom took several aggressive steps to put pressure on
DirecTV to reach a new deal. The company blocked access to its
programming online so that DirecTV subscribers would not be able
to view its programming on alternate platforms. It also created
two videos that mocked DirecTV's position and its recent
This is not the first time a distributor has blacked out
Viacom's channels due to a contract dispute. In 2004, Dish
dropped some Viacom networks after the two sides failed to reach
agreement on a new distribution deal. That blackout was
short-lived, lasting less than 48 hours.