Directv and Viacom Blackout Ends - Impact TBD

[Woochifer]

Another week, another TV carriage dispute. Viacom and Directv reached an agreement today, and their carriage dispute that started last Monday has ended. Most articles I'm reading indicate that Viacom basically caved in after previously demanding a reported 30% increase in carriage fees and that Directv add the Epix pay channel to their lineup.

As a Directv subscriber, the dispute with Viacom cut off 17 channels, including MTV, Comedy Central, and Nickelodeon. I found that I hardly missed any of them. My daughter watches Nick Jr, but we have so many of her favorite shows stored on the DVR that it hardly mattered.

Given that most carriage disputes are resolved without any program interruptions (and nearly all of the rest are put to bed very shortly), the 11-day service interruption between Viacom and Directv revealed some interesting themes.

1) Viewers have options and will exercise them.
Directv accounts for 20% of Viacom's subscriber base, and the mostly-sagging ratings for their networks took about a 20% hit. For Nick viewers, they seamlessly migrated over to competing channels, as ratings for Disney, Hub, and Sprout had large spikes.

http://www.nytimes.com/2012/07/19/business/media/dispute-with-directv-aids-viacoms-rivals-in-childrens-programming.html

2) Holding cable/satellite viewers hostage isn't enough. Screwing with streaming viewers is the new thermonuclear weapon.
In a rather brazen middle-fingered move, Viacom decided to try pressuring Directv by not only blacking out the channels on Directv's system, but by also removing all free web-streaming access to those channels. Compared to others, Viacom has been aggressive with allowing free access to video clips and full episodes on the web. But, once they blacked out Directv, Viacom also cut off all free web access (subscribers to Hulu Plus still had access). With that move, they managed to piss off more than just Directv's subscribers, but cord cutters as well. Anyone sitting on the fence wound up siding with Directv. Viacom eventually had to back down and resume free streaming for The Daily Show and Colbert Report.

Viacom pulls “The Daily Show” offline as a result of contract dispute | Ars Technica (http://arstechnica.com/business/2012/07/viacom-pulls-the-daily-show-offline-as-a-result-of-contract-dispute/)

But, in future carriage disputes, I can see the online video streaming increasingly used as a potential weapon against the carriers by program providers. Viacom backed off this time, but a more determined player with considerably more leverage (e.g., Comcast/Universal, News Corporation/Fox, or ABC/Disney) could try a similar strategy of blacking out their free web streams if they want to ratchet up the pressure on a carrier.

3) Live and local content is king
An interesting take from the LA Times is that Viacom wound up screwing itself in this dispute when they separated from CBS back in 2009. Huge short-term gain, but potentially a long-term loss as they lost considerable leverage in the process.

The combined carriage fee that Directv pays Viacom is about $2 per subscriber for 17 channels. ABC/Disney gets ~$4.50 per subscriber for the ESPN channels alone. The difference is that ESPN content is live, and therefore more valuable. And another trend that we have seen over the last couple of years is the major broadcast networks using their local affiliate programming as a weapon during carriage negotiations.

Bottomline is that more subscribers will cancel their service if they lose access to live and local content. Losing access to most scripted and reality shows will merely prod most viewers to change to a different channel. Viacom was vulnerable because they no longer had CBS in their programming docket, and much of their most high value programming was already available on the web for free.

Viacom and DirecTV reach deal - latimes.com (http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-viacom-directv-deal-20120720,0,1311648.story)

[Smokey]

The combined carriage fee that Directv pays Viacom is about $2 per subscriber for 17 channels.

Does that mean DirecTV bill would have decreased by $2 if black out had continued :D

Most of Viacom channels are crap anyway with tons of commercials and boring programs. I wished the Cable and satelitte would provide alacart programming where customers can pick and choose what channels they want. Like a package that only include movies channels, sitcoms or learning/nature channels.

Or package that only include sport channels for those that love sports, so rest of us who don't watch sport (including myself) don't have to pay $4.50 per subscriber for the ESPN channels (hypothetically speaking).

[TheHills44060]

I wished the Cable and satelitte would provide alacart programming where customers can pick and choose what channels they want...
Been wishing for something like this for years.

[Woochifer]

Most of Viacom channels are crap anyway with tons of commercials and boring programs.

You don't have a child whose room is a shrine to Dora The Explorer, do you?


I wished the Cable and satelitte would provide alacart programming where customers can pick and choose what channels they want. Like a package that only include movies channels, sitcoms or learning/nature channels.

A la carte is the cheapskate's pipe dream. In the real world, the ultimate result of a la carte channel selection would inevitably be much higher prices for the channels that you do watch. Unless you only pick and choose a select few channels, the inevitable result would be paying more for fewer channels.

The carriage rates for channels like Viacom's 17 channels on Directv are set on the assumption that they will be on the basic tier (i.e., included with every subscription, except those bare basic broadcast-only "lifeline" services). Having access to 80% of all TV households is also how those channels set their advertising rates. If cable systems go to a la carte selection, then the content providers will inevitably price the channels high enough to make up for the loss in subscriber counts, and the inevitable decline in ad rates. I read an article a while ago that looked into the economics of this, and it concluded that under a la carte pricing, consumers would likely wind up paying as much for roughly 30 channels (and this is assuming that half of them are broadcast channels), as they currently do for 200+ channels.

Up until recently, content providers have been willing to charge less in access fees in exchange for channel slots for their lower rated channels. Now, more program providers are moving into higher priced content (e.g., scripted dramas FX, AMC, and TNT) to try and attract a more desirable audience.

Once they have that audience, they've been more willing to try playing hardball with new content access deals. This is why AMC and Dish remain at an impasse -- AMC's ratings aren't that high, but they have solid bloc of viewers in the desired demographics who watch Breaking Bad and Mad Men. AMC's counting on that to justify big carriage fee increases, and Dish is presuming that AMC's audience isn't big enough to trigger mass subscription cancellations.

Basically, it all comes down to the revenue stream. A la carte will not happen unless somebody can demonstrate that letting customers pick and choose individual channels can still maintain high revenues. If revenues fall, then the content will get cut back. A full prime time schedule of scripted dramas on TNT, for example, can only be supported if the channel is universally available on the basic tier.

If anything, the primacy of the cable/satellite subscription is being reinforced by the recent carriage deals. Directv's deal with Viacom includes expanded streaming rights for subscribers. Even web streaming on the cable channels' websites increasingly keep content behind a login wall for cable/satellite subscribers only.


Or package that only include sport channels for those that love sports, so rest of us who don't watch sport (including myself) don't have to pay $4.50 per subscriber for the ESPN channels (hypothetically speaking).

And if you create a sports-only package, it will cost a lot more than $4.50 to add ESPN. If you create a news-only package, it will cost more than the current ~$0.50 to add the CNN channels, etc. The issue right now is that content providers are escalating their program costs, going with more original programming in a bid to make their channels indispensable to a core audience. They're also going with more live programming, since that is less impacted by piracy.

[Smokey]

Been wishing for something like this for years.

DirectTV used to alacart programming back when they got started back in around '94-95. You could just order the premium movie channels only without any basic channels subscription, albiet slightly extra fee. Back then satellite was best thing next to sliced bread since it freed you from local cable company, with better picture and sound quality to boot.


I read an article a while ago that looked into the economics of this, and it concluded that under a la carte pricing, consumers would likely wind up paying as much for roughly 30 channels (and this is assuming that half of them are broadcast channels), as they currently do for 200+ channels.

Considering that out of 200+ channels, most poeple only watch a handfull of it on regular basis, then I guess it will be same :)

Not having alacart programming is really a win-win situation for cable/satelitte providers. Not only will they be able to collect fees for channles that nobody watch (like OWN :D), they also be able to offer more watched channels (like premium or movie channels) as an add on. So if you only watch movies, you have to pony up for basic channel also.

[Woochifer]

DirectTV used to alacart programming back when they got started back in around '94-95. You could just order the premium movie channels only without any basic channels subscription, albiet slightly extra fee. Back then satellite was best thing next to sliced bread since it freed you from local cable company, with better picture and sound quality to boot.

And back then, Directv was also prohibited from offering local broadcast channels. I don't recall Directv ever offering an a la carte deal for premium channels without a basic subscription, and my wife has been a subscriber since 1996. By that time, Directv was bragging that they offered more "basic" channels than cable (which was true because the vast majority of cable subscribers at that time were still on bandwidth-constrained analog service).


Considering that out of 200+ channels, most poeple only watch a handfull of it on regular basis, then I guess it will be same :)

But, even if they only watch a few channels "on regular basis" there will still be programs that people watch on occasion on other channels. That's the reason why I doubt that a la carte will ever take off despite the usual bellyaching from the so-called cord cutter crowd.


Not having alacart programming is really a win-win situation for cable/satelitte providers. Not only will they be able to collect fees for channles that nobody watch (like OWN :D), they also be able to offer more watched channels (like premium or movie channels) as an add on. So if you only watch movies, you have to pony up for basic channel also.

But, at the same time, it's also the only way that the providers can keep adding channels without the costs venturing even higher than they already are. The issue right now is how much higher the rates will go before consumers actually start downgrading their cable/satellite service or cancelling altogether. Up to this point, cable's subscriber losses have been more than made up by satellite, fiber, and IPTV services. The death knell predictions by techies are based on the slowing subscription growth for pay TV services. But, pay TV penetration is already at 80%, so it does not have much room for growth. Given that cell phone penetration is also stuck around 80%, are they going to make the same predictions of cell service?

[Smokey]

I don't recall Directv ever offering an a la carte deal for premium channels without a basic subscription, and my wife has been a subscriber since 1996.

It might have been the Dishnetwork as it was long time ago. Either way it was a block of movie channels you could order by itself [alacarte] at higer price than if ordered with basic subscription.


But, even if they only watch a few channels "on regular basis" there will still be programs that people watch on occasion on other channels. That's the reason why I doubt that a la carte will ever take off despite the usual bellyaching from the so-called cord cutter crowd.

I think alacrt is not offered more because of economics rather than consumers. But as you said since the market is saturated, alacart might be another incentive to attrack more subscribers. Or better yet, do web portal subscription.


But, at the same time, it's also the only way that the providers can keep adding channels without the costs venturing even higher than they already are.

Yes, another home shopping network without charge :D