Viacom has pulled its 17 cable channels including MTV, Nickelodeon, Comedy Central, BET, VH1 and Spike off of DirecTV after the parties failed to negotiate a new carriage agreement. Unlike AMC Network’s current dispute with Dish, many more people watch Viacom’s networks, so it will be interesting to see who blinks first.
DirecTV claims that Viacom is asking for an increase of one billion dollars in fees and argues it is already paying Viacom hundreds of millions a year. To put the extra billion dollars in perspective, that amounts to less than $5/month more per DirecTV subscriber. That’s the wholesale price though, the retail markup would be higher.
Big corporations fighting over how to divvy up billions of dollars isn’t exactly a new problem. Carriage negotiations are nothing new either. But I’m sure the TV media establishment will spin this along with AMC’s squabble with Dish as a signs of an apocalyptic breakdown in the TV business model.
I always figured that the divvying of the pie was going to be an increasingly painful process. It effectively amounts to redistribution of revenue where some cable networks gain at either the expense of other networks or at the expense of the MSOs (Comcast, DirecTV, Time Warner, etc) or both. And of course at the expense of the subscribers. But it’s not like that hasn't been painful the last 20 years either. But in the past it has been uncommon for channels to actually to be pulled.
Things are more painful for DirecTV and Dish Networks these days. Their business model may not be completely broken, but it’s not as good as it once was. All the satellite companies really can compete on now is pricing. Everybody can catch up on technology. Remember when DirecTV was using “more HD than anyone else!” as a selling point? That lasted about 5 minutes. Meanwhile the cable companies have grown the hell out of their broadband Internet businesses, something that DirecTV and Dish aren’t well positioned to do and so growing their businesses is very difficult.
When content providers want to raise prices and all DirecTV and Dish can really compete on is price, passing along the price hikes to subscribers isn’t a happy proposition, but eating the price hikes without passing them along isn’t any fun either! So option “C” it is.
That’s no fun for the subscribers though and I don’t expect DirecTV to send its subscribers an announcement of “Bad news, good news! The bad news is no Snooki or SpongeBob, but the good news is we’re lowering your bills now that we aren’t paying the hundreds of millions of dollars a year we were paying before! Yay!"
Instead DirecTV has taken a very populist stance of “ Viacom thinks their networks are worth a billion more, then you have to be able to select what’s most important in your own living room. It’s your money, so you should be able to decide.”
That position will go over very well with a lot of people. I can’t fault Viacom for wanting to increase the percentage of its TV revenues that come from monthly subscriptions (vs. advertising). But it’s hard to find fault with DirecTV saying “screw that!” even if it’s spun as “power to the people!”
Jersey Shore won’t be back for a while and there’s plenty of SpongeBob on Netflix, so perhaps it’s not a bad time for DirecTV to play chicken and see how much of a ratings hit the Viacom networks take (DirecTV accounts for ~20% of the homes with cable channels). My guess is the Viacom channels will be back on DirecTV sooner rather than later, but it will be interesting to see how it plays out.
You can read more of DirecTV's position at http://www.directvpromise.com/