--DirecTV, Viacom reach programming fee agreement
--Pact ends blackout of Viacom channels on DirecTV
--Financial terms weren't disclosed
(Updates throughout, including analyst quote beginning in
paragraph 10.)
By Drew FitzGerald and Chelsea Stevenson
DirectTV Group Inc. (DTV) and Viacom Inc. (VIA, VIAB) reached an
agreement that ends a combative dispute over programming fees and
restores channels like Nickelodeon, Comedy Central and MTV to the
satellite TV provider after a blackout started 10 days ago.
Financial terms weren't disclosed, but DirecTV said that under
the "long-term agreement," its customers will be able to watch
Viacom programming on their laptops and other handheld devices.
The two sides were negotiating all of Thursday night and into
the early hours of Friday morning, according to a person familiar
with the matter, because both sides were anxious to get a deal
done. Viacom's channels had suffered sharp ratings declines during
the dispute, while DirecTV saw some subscriber defections.
Fee disputes are common in the pay-TV industry, but this one was
particularly significant because it pitted one of the nation's
largest cable-network owners against the country's second-largest
pay-television operator, with about 20 million subscribers.
DirecTV had previously said Viacom wanted a 30% increase that
would equate to an extra $1 billion, whereas Viacom had said it was
looking for a fair deal to replace a seven-year-old agreement.
The dispute was another indication of the increasing friction
between content companies and pay-TV distributors over programming
fees and how video is distributed online. The impasse got nasty at
times as both sides waged a public relations campaign to gain
customer support.
Even in announcing the agreement Friday, DirecTV took a shot at
Viacom in its press release.
"It's unfortunate that Viacom took the channels away from
customers to try to gain leverage, but in the end, it's clear our
customers recognized that tactic for what it was," said Derek
Chang, executive vice president of content strategy and development
for DirecTV.
The companies couldn't even agree on how many channels were
affected. Viacom said Friday that "all 26 Viacom networks" were
restored, while DirecTV put the number at 17.
One Viacom channel not appearing immediately on DirecTV is the
Epix movie network. Under the agreement, the companies said,
DirecTV has the option to add it but is not required to do so.
DirecTV had said it was unwilling to carry the lightly watched
movie channel "at the additional cost of more than a half billion
dollars."
Otherwise, though, the news appeared like a win for Viacom, said
BTIG Research analyst Richard Greenfield.
"I can't imagine Viacom would have caved in this quickly," he
said, adding that the entertainment company offers too many
high-profile channels for DirecTV to keep from its subscribers.
DirecTV faces another programming negotiation in coming months:
Its deal with CBS Corp. (CBS) is up for renewal in the fall,
according to a person familiar with the matter.
The latest dispute came as audience ratings have dropped at some
of Viacom's best-known channels, particularly Nickelodeon. Those
declines were accentuated over the past 10 days because of the
blackout on DirecTV.
Many of the viewers Viacom lost during the dispute went to Walt
Disney Co. (DIS), Sanford Bernstein analyst Craig Moffett said,
adding pressure on Viacom to quickly reach an agreement. He said
DirecTV appears to have performed well during the negotiations,
particularly in the public-relations battle over where viewers
would place blame for the outage.
"Viacom made a strategic blunder by taking its programming off
the Web, and in the process they alienated a lot of customers," Mr.
Moffett said.
The debate over the availability of video content on low-price
or free online video outlets is becoming a bigger issue between
entertainment companies and pay-TV providers because it is seen
disrupting one of the most important and lucrative business models
in media.
To combat concerns that consumers may be "cutting the cord" on
pay television and getting their content at a lower cost online,
entertainment companies are increasingly requiring those watching
via the Internet to prove they are a pay-TV customer first.
Viacom's agreement with DirecTV allows the satellite-TV provider to
offer such programming to its subscribers.
DirecTV's shares closed Thursday at $48.95, and Viacom's Class A
shares finished at $49. Both were inactive premarket.
Also late Thursday night, Time Warner Cable came to an agreement
with Hearst Corp. to carry 15 broadcast stations affiliated with
broadcast networks like ABC, NBC and CBS in 12 markets, where the
programming had been blacked out since early last week in a dispute
over fees.
--The Wall Street Journal also contributed to this article.
Write to Drew FitzGerald at andrew.fitzgerald@dowjones.com
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