Viacom, DirecTV End Carriage Dispute

DirecTV calls programmers 'bullies' for causing blackouts

By Jon Lafayette -- Broadcasting & Cable, 7/20/2012 7:47:16 AM

Updated 11:25 a.m. ET

Viacom and DirecTV have reached an agreement, ending a nasty week-long dispute that had blacked out channels including Nickelodeon, MTV and Comedy Central to DirecTV subscribers.

Financial terms were not disclosed, but DirecTV said the resolution showed that programmers who try to bully distributors with blackouts won't get better deals.

DirecTV says the agreement will enable its customers to see Viacom programming on tablets, laptops, and other personal devices on what it calls the DirecTV Everywhere platform.

It added that carriage of the Epix movie service -- a joint venture of Viacom and several movie studios -- is not required. Viacom said DirecTV has an option to add the Epix service to its entertainment offerings.

"We are very pleased to be able to restore the channels to our customers and thank them for their unprecedented patience and support," Derek Chang, executive VP of content strategy and development for DirecTV, said in a statement. "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."

Chang added that "the attention surrounding this unnecessary and ill-advised blackout by Viacom has accomplished one key thing: it serves notice to all media companies that bullying TV providers and their customers with blackouts won't get them a better deal. It's high time programmers ended these anti-consumer blackouts once and for all and prove our industry is about enabling people to connect to their favorite programs rather than denying them access."

Analyst Michael Nathanson of Nomura Securitas said he thought Viacom secured subscriber fee increases above its Most Favored Nation Clauses in contracts with other distributors.

Nathanson calculates that Viacom will get payments of about $280 per sub in its new deal with DirecTV, compared to $2.25 per sub in the expired agreement. He estimates that Viacom gets about $3 per sub from other distributors.

"The deal is consistent with the company's prior guidance for affiliate fee growth of high-single to low-double-digit growth," Nathanson said in a report. "The unknown to us is if Viacom receives the return to market rate all in the first year or if it is spread out over a few years. If the step-up was all in the first year, our total domestic affiliate fee revenue growth would increase to over 10% Y/Y in FY13, above our current 8% Y/Y estimate."

On a broader note, Nathanson says, "this deal reinforces the power of Viacom's networks and brands, especially in the face of weak short-term ratings. It also helps set the template for future deals and debunks the bearish thesis of dropping any networks or not having enough clout over distributors given recent concerns over Nickelodeon ratings."

"While [Viacom] may be somewhat disappointed by a conspicuously futile attempt to secure carriage of its Epix JV premium channel, we see some relief on resolving an impasse that was significantly impacting some ratings issues, added Tuna Amobi, equity analyst at S&P Capital IQ.

In its brief release, Viacom said it was "extremely pleased to bring its programming back to DirecTV subscribers, and thanks everyone affected by the disruption for their patience and understanding during this challenging period."