Viacom has everything to lose in DirecTV battle

A prolonged dispute could mean permanently lost viewers and angry advertisers.

By Jonathan Berr Jul 19, 2012 11:42AM
Image: Watching television (© Frare/Davis Photography/Brand X/Corbis)Viacom (VIA) Chairman Sumner Redstone and CEO Philippe Dauman need to bury the hatchet with DirecTV (DTV) -- sooner rather than later.

Ratings for Nickelodeon have tumbled 20% in the week since the satellite TV company dropped the Viacom's children's channel and other networks, such as Comedy Central, after failing to reach an agreement over fees.

Unfortunately for Viacom, which is based in New York, ratings for Nickelodeon, a cash cow that's home to "SpongeBob SquarePants" and "Dora the Explorer," were in free fall before the DirecTV dust-up. Those popular programs are long in the tooth and, at least in the case of "SpongeBob," had run out of creative gas years ago, according to fans.

To make matters worse, as the New York Times noted, young DirecTV viewers are finding alternative sources of entertainment on other cable channels. Once media habits are changed, they are hard to change back.

If the dispute doesn't end soon, Viacom may be in trouble with advertisers. Most commercials on television are sold in advance, based on guarantees that the spots will reach a certain number of people. If the cable giant fails to deliver the audience it promised, the company has to give advertisers "make goods," essentially free commercials. This dispute underscores a serious problem facing cable TV.

Media companies rake in billions of dollars in carriage fees from cable and satellite providers to give them access to their networks. The TV providers have grumbled about double-digit increases in these costs for years, and with cable ratings in decline their argument has particular resonance. 

The two sides seemed close to reaching a deal yesterday to bring the 17 channels back to DirecTV, but Viacom insisted that the satellite provider carry EPIX -- a channel that confusingly calls itself a "big new movie channel that's more than just a big new movie channel" -- at an additional cost of more than $500 million, according to DirecTV.  

"We know our customers don't want to pay such an extreme price for an extra channel, they simply want the ones they had returned to them," the El Segundo, Calif., company said in a statement.

DirecTV has a point. The business model that enables strong cable channels to underwrite weak ones is getting tougher for the media companies to justify in the current multi-platform universe. A la carte pricing, though, would crush small networks and large floundering ones, such as Time Warner's (TWX) CNN.

Viacom, of course sees things differently. The company said the talks have reached "an impasse" and accused DirecTV of "not negotiating productively" -- whatever that means. Of course, this is all posturing for the media. 

Viacom and DirecTV will eventually resolve their dispute because these carriage fights don't last forever. (This is TV, after all. We are not talking about bringing peace to the Middle East.) Other media companies have to be worried that it will set a tough precedent that they will be forced to follow.

DirecTV can't hold out forever either because customers will need their MTV and Comedy Central fix, but it can afford to stand firm for a while longer. Viacom does not have that luxury.

Jonathan Berr does not own shares of the listed companies. Follow him on Twitter@jdberr.



Tags: DTVJonathan BerrTWXVIAVIA.B
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10Comments
Don Nuerneberg
Aug 2, 2012 9:48PM
avatar

try getting people in the good old usa to talk to.  we signed for 6 years and when a pearson at sams club said an oval dish and new box would help, searching for sattelite etc. we were told from some island country that it wouldnt make any sifference.  We love Cable Tv and super fast internet. Thank You

 

 

rudad5
Jul 20, 2012 1:01PM
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its all about them greedy bastards on both sides who are they tryin to kid?!
bulldog208
Jul 19, 2012 9:31PM
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i dont miss any of them , i liked the comedy channel, and tv land but that was it, the rest the could have keep anyway, directv needs to get the me channel has alot of old shows on it,
freedom-o-speech
Jul 19, 2012 3:17PM
avatar
My daughter missed nickjr for the first couple of days.  Now she has gravitated to the brain-dead tweenage shows on disney.  But she has discovered my little ponies and care bares on the Hub.  I do have to monitor the tweenage shows so that she will understand what is and what isn't appropriate behavior for a 5 year old.
dmacin
Jul 19, 2012 2:28PM
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Screw Viacom.  I would rather not have those channels.
riffhard37
Jul 19, 2012 2:19PM
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I love when 2 big corporations have a urination contest and say its for our benefit. 

 

I miss Comedy Central, and the kids miss some of the Nick programming.  Overall as a household, we don't care.  Kids play sports in the summer, and we have the community pool about 3 blocks from our house.  We don’t get to watch much tv.  If the channels don't come back on, I just hope our bill is significantly cheaper.

Rspkt ..... (TheyCallMeRspkt...)
Jul 19, 2012 1:54PM
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I don't miss any of the channels except for Comedy Central. And lets face it, they rerun their shows so often whatever I miss I'll catch up on once Viacom stops being greedy and we get our channels back.

lawrence wilson (teflonbearfedway)
Jul 19, 2012 1:45PM
avatar

once again, ad infinitum; ala carte is the only way to go.

cnn is long past being relevent. one gets tired of the bias,

racism and discrimination that it now practices. in the day,

it was the place to go for open news. now it is biased to the

max.

my self, i am looking to see a BIG credit on my next directv

bill to offset losing the many choice channels that disappeard.

i truly miss the new shows on tv land; some bet but pretty much

could care less.

ALA CARTE FCC

I dont want my mtv
Jul 19, 2012 1:28PM
avatar
i actually like the replacement channels more..they are viewable. I mean how many sponge bob or jersey shores can anyone watch.
MTV hasnt been relavent in years, its not a music channel anymore..its all crap.
The rest of the channels I never even watched..atleast now there is more variety.

Direct TV stand your ground..forget viacom and raising prices !!


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