By Suzanne Vranica
Storm clouds have stalled over the Weather Channel.
The cable channel on Tuesday will enter its second week blacked
out from DirecTV's program lineup, as a result of a dispute over
fees, with no sign that a resolution is near.
The two companies aren't even in talks, representatives for both
said.
The stakes are high for the Weather Channel, a unit of Weather
Co., owned by private-equity firms Blackstone Group LP and Bain
Capital LLC as well as Comcast Corp.'s NBCUniversal Inc. DirecTV is
the second-biggest pay-TV operator in the U.S., serving more than
20 million subscribers, or about a fifth of the pay-TV
universe.
The blackout therefore is depriving the Weather Channel of
access to a significant chunk of the TV audience. But settling the
dispute could be costly. DirecTV wants to reduce the fees it pays
the Weather Channel by more than 20%, a person familiar with the
situation has said, while the channel wants a slight increase.
DirecTV has declined to comment on its rate requests but has
said the channel has less value because many people get their
weather information from mobile devices.
Analysts warned last week that if DirecTV succeeds in winning a
rate reduction, it could trigger a cut in fees the Weather Channel
receives from other pay-TV operators. Agreements between channel
owners and large pay-TV operators typically guarantee the operators
the lowest price charged by the channel. A 20% rate cut extended
across other pay TV operators could reduce the Weather Channel's
cash flow by about $40 million, or 24%, SNL Kagan estimated in a
report last week.
On Friday Moody's Investors Service cited the potential for a
subscriber-fee reduction as one of several factors relating to the
dispute that could affect Weather Co.'s credit rating. In a report,
Moody's also noted that being permanently dropped from DirecTV
"could have several operational and credit ramifications" for the
Weather Channel.
Moody's calculated that the loss of Direct TV could lead to
revenue declines in the midteens for the Weather Channel, which
accounts for between 50% and 60% of Weather Co.'s total revenue,
Moody's estimates.
Still, Moody's believes there is a "good chance" the dispute
will be resolved because the channel isn't "fully replicated
elsewhere on TV" and it also "provides valuable public service
programming during periods of regional extreme weather events." It
predicted the two sides would resume negotiations "over the coming
weeks."
Weather Co. declined to comment on either the Moody's or the
Kagan reports.
DirecTV has replaced the channel with WeatherNation. It said
Monday it was getting "inundated" with positive responses from
customers about the new channel, while the Weather Co. spokeswoman
said, "We have been overwhelmed with the amount of support we've
seen from our viewers."
Shalini Ramachandran contributed to this article.
Write to Suzanne Vranica at suzanne.vranica@wsj.com
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