--Viacom channels went dark overnight for DirecTV
subscribers
--No immediate resolution or negotiations known publicly
--Dispute is latest high-level standoff on programming fees
(Adds quote from Viacom CEO, share price and background
throughout.)
By William Launder
Viacom Inc. (VIA, VIAB) channels--including Nickelodeon, MTV and
Comedy Central--went dark for DirecTV Group Inc. (DTV) subscribers
overnight after the two sides failed to come to an agreement on
programming fees.
The dispute highlights intensifying friction between content
companies and pay-TV distributors over the costs of programming, as
cheap online-video offerings like Netflix Inc. (NFLX) provide
alternatives to traditional pay-TV packages.
The blackout also comes as Viacom has seen its ratings decline
recently for top shows like Nickelodeon's "SpongeBob SquarePants"
and MTV's "Jersey Shore." While fee disputes are common in the
pay-TV industry, this one is significant because it pits one of the
nation's largest cable network owners against the country's
second-largest pay-television operator, with about 20 million
subscribers.
In Sun Valley, Idaho, where media moguls are meeting at Allen
& Co.'s annual conference, Viacom Chief Executive Philippe
Dauman told reporters Wednesday morning, "We've done deals with
every single U.S. distributor since the last DirecTV deal."
It's "unfortunate," Mr. Dauman said, that consumers are now
"unable to enjoy our channels." He said he didn't want to negotiate
in public, adding that "we're ready to move forward."
A Viacom spokesman said further negotiations currently weren't
scheduled.
In a blog post late Tuesday, Viacom said it had offered DirecTV
a "fair deal" on rate increases, amounting "to an increase of only
a couple pennies per day, per subscriber."
DirectTV, meanwhile, said in its own statement that it had been
"very willing to get a deal done" but criticized what it described
as a 30% rate increase--equal to around $1 billion--demanded by
Viacom. DirecTV also noted that Viacom was seeking the increase at
a time when ratings at many of its top networks are sinking and as
it gives away much of its content online.
Viacom has said DirecTV benefited from "way below market rates"
in its seven-year-old deal with the content company, a contract
that is "ancient by the standards of the ever-evolving media
industry." According to Viacom, DirecTV has offered a rate that is
lower than Viacom receives from any other TV distributor.
Signs of the dispute emerged publicly this week as both parties
attacked each other in blog posts and on affiliated websites, a
common tactic in such disputes.
In a carriage fee dispute with Time Warner Cable Inc. (TWC) in
late 2008, Viacom purchased advertising space in major newspapers
depicting a crying "Dora the Explorer," and urged subscribers to
complain to Time Warner Cable.
Industry executives and analysts have in recent months predicted
that Viacom would encounter challenging negotiations like this
because of ratings softness. Viacom also has been accused of
cannibalizing its own ratings by making shows available via
Netflix, a suggestion refuted by the cable-network operator.
DirecTV shares traded 0.3% lower at $48.50, while Viacom's Class
B shares traded 0.9% higher at $47.30.
Blackouts are becoming increasingly common as distributors balk
at the high rates charged by content companies and face challenges
from a soft economy and new forms of competition like online
TV.
In another recent example of a standoff over carriage fees,
Madison Square Garden Co.'s (MSG) channels were dropped for Time
Warner Cable subscribers in a seven-week spat that ended in
February. The companies reached a compromise on rate increases
brokered by the New York attorney general.
Satellite TV companies like DirecTV are particularly vulnerable
to higher programming fees because they don't have other big
businesses like telephone or broadband service to support their
earnings.
"The biggest fights you are going to see are likely with the
satellite operators, because they are one-trick ponies and it's
more material for them to fight," said Vijay Jayant, an analyst
with ISI Research.
DirecTV also has taken aim at Viacom's bundling of popular
channels with less-watched ones, something that regulators have
begun to examine for signs of anticompetitive practices.
"Programmers like Viacom typically won't allow anyone to buy
their channels individually, but we hope to change that," DirecTV
has said.
Viacom says it has offered rates for individual channels
throughout the negotiating process, with discounted rates offered
for multiple channels.
-John Jannarone and Shalini Ramachandran contributed to this
article.
Write to William Launder at william.launder@dowjones.com