On Tuesday evening, more than 20 million DirecTV subscribers saw over two dozen TV channels go dark. This came from Viacom, Inc. (NASDAQ:VIAB) (NASDAQ:VIA) and DirecTV (NASDAQ:DTV) failing to reach a programming fee agreement.
The viewers saw the loss of 26 channels including MTV, Nickelodeon and Comedy Central thanks to Viacom not accepting DirectTV's July 9 offer. According to Robert Mercer, a DirecTV spokesman, the lineup also encompassed nine high-definition versions of the 17 Viacom networks that the company carries.
Derek Chang, DirecTV's executive vice president of content, strategy and development via Bloomberg on Tuesday, “We have been very willing to get a deal done, but Viacom is pushing DirecTV customers to pay more than a 30 percent increase. Viacom sent us a letter last night that outlined our obligations to remove the channels by midnight or face legal action.”
This disagreement isn't the first for a pay-TV provider and it program supplier. Just last month, 14 million Dish Network Corp. subscribers saw their access to AMC Networks Inc (NASDAQ:AMCX) disappear.
For Viacom's dispute, its 26 programs come to about 20 percent of DirecTV's audience; meanwhile DirecTV has said Viacom’s channels have seen ratings declines.
One analyst concurred. Todd Juenger, a Sanford C. Bernstein & Co. analyst wrote in a June research note, “It has been inconceivable that any distributor could drop Viacom’s networks, mostly because of Nickelodeon. But ratings are down, often significantly, at networks representing 71 percent of Viacom affiliate fees.”
A Failure to Reach an Agreement
After months of negotiation, the two companies did extend their seven-year-old agreement after its June 30 expiration while talks were ongoing. At that time,Viacom channels remained on DirecTV.
But the company cut Viacom’s channels without warning just 10 minutes to midnight wrote Viacom executive Mark Jafar in a blog post, reported Bloomberg. He said DirecTV “refused to engage in meaningful conversation.”
Jafar added, “We are deeply disappointed that DirecTV dropped Viacom’s channels before our midnight deadline this evening, severing our connection with its nearly 20 million subscribers nationwide. We proposed a fair deal that amounted to an increase of only a couple pennies per day, per subscriber, and we remained willing to negotiate that deal right up to this evening’s deadline.”
We all know there's two sides to every story and DirecTV is sticking to the 30 percent fee increase in fees in the new contract terms. This equates to an additional $1 billion in costs. Meanwhile Viacom has said its fees represent under five percent of the satellite company's programming expenses, and that DirecTV “enjoyed way below market rates for Viacom’s networks for a very long time.”