Thursday, July 19, 2012

Viacom Says DirecTV Talks Are Now At An 'Impasse'

From Bloomberg:
Viacom Says DirecTV Talks Are Now At 'Impasse'

Viacom Inc. (VIAB), owner of MTV, Nickelodeon and Comedy Central, said program-fee talks with DirecTV stalled, signaling a longer blackout for 20 million subscribers who lost the pay-TV networks nine days ago.

“We've reached an impasse,” Denise Denson, executive vice president of content distribution at New York-based Viacom, said yesterday in a phone interview. “They’re not negotiating productively. I don’t see any end to this blackout.”
DirecTV said Viacom was misrepresenting the talks. The El Segundo, California-based satellite-TV provider said it had agreed on major points for a new fee agreement restoring the channels, and that an accord was close until Viacom demanded the movie channel Epix be included.

“Viacom insists that we carry the Epix channel at an additional cost of more than half a billion dollars,” DirecTV (DTV) said in a statement. “We know our customers don’t want to pay such an extreme price for an extra channel, they simply want the ones they had returned to them.”

DirecTV, the second-largest pay-TV provider in the U.S., pulled 17 standard-definition and nine high-definition Viacom channels on July 10 after the two companies failed to reach an agreement on a new contract. Since then, DirecTV customers have been without popular cable shows such as “The Daily Show” on Comedy Central.

DirecTV said on July 17 it was closer to restoring Viacom’s channels as talks continued. The company reiterated that view yesterday, calling Viacom’s characterization “completely inaccurate.”

Epix Channel

Viacom “made a proposal last night for our carriage of the 17 channels they pulled from DirecTV and we accepted all material terms for those channels, including an increase that was more than fair," DirecTV said in the e-mailed statement.

Epix, a movie channel that Viacom's Paramount Pictures started in 2009 with Lions Gate Entertainment Corp. (LGF) and Metro- Goldwyn-Mayer Studios Inc., has gained limited distribution on pay-TV systems. The three biggest, Philadelphia-based Comcast Corp., DirecTV and New York-based Time Warner Cable Inc. (TWC), don’t offer the channel.

DirecTV has said Viacom is asking for a 30 percent rate increase over the term of the new contract, amounting to more than $1 billion in additional costs. DirecTV has forecast that its total programming expenses will rise almost 10 percent this year.

‘Deny,’ ‘Delay,’

Viacom has countered by saying its fees account for less than 5 percent of the satellite service’s programming expenses.

Viacom's Denson said yesterday that DirecTV has spent little time on contract talks.
“They spend 10 minutes a day negotiating the deal,” Denson said. “That’s all the time they devote to this -- it’s deny, delay, deceive.”

Meanwhile, Viacom’s audience has shrunk 20 percent since the blackout began, estimates Todd Juenger, an analyst at Sanford C. Bernstein & Co. in New York.

Viacom Chief Executive Officer Philippe Dauman met with DirecTV CEO Mike White last week during Allen & Co.’s media conference in Sun Valley, Idaho, according to Denson. Over the course of a 30-minute talk, Dauman offered a compromise that White said he would consider, she said, declining to discuss specifics.

“Mike never called back,” Denson said.
Also, from C21Media:
Viacom, DirecTV: No deal in sight

Viacom has warned that there is “no deal in sight” in its carriage dispute with DirecTV, as the latter claimed unreasonable demands regarding paynet Epix were holding up talks.

As the war of words escalated between the two firms yesterday, DirecTV said it was “ready to close” a deal to reinstate the 17 (26 including HD feeds) channels that were pulled from its platform last week. It said it had “accepted all material terms” with Viacom to do so.

However, in a statement, the firm added that Viacom insisted it also carry Epix – its joint venture with MGM and Lionsgate – at an additional cost of more than US$500m.

“We know our customers don’t want to pay such an extreme price for an extra channel. They simply want the ones they had returned to them,” DirecTV said.

Viacom hit back, dismissing the claims as a “complete work of fiction.”

In a blog post, the company said: “We’ve offered DirecTV various compromise proposals – proposals without Epix, proposals with Epix, and proposals with significant incentives to carry Epix. DirecTV did not accept all material terms for our channels, nor are we asking for a sum of US$500m.”

Earlier in the day Viacom alleged that DirecTV had shown no urgency in working out a resolution to the spat, which saw networks including MTV, Nickelodeon and Comedy Central go dark on the platform over a week ago.

Viacom claimed that it had made “a significant and comprehensive compromise proposal to DirecTV last Thursday” that could have restored all its channels by the following morning. It also said that it had since made “several additional compromise proposals,” as recently as Tuesday night. It said negotiations were now at an “impasse.”

The news came as Time Warner Cable (TWC) issued its own statement in favour of DirecTV, claiming that “consumers are tired of these disputes and so are we.”

TWC is currently embroiled in its own carriage dispute with Hearst, with 13 of the latter’s local stations going dark on its platform last week as a result.

“Television networks can’t continue to demand huge price increases and expect us to silently pass those cost increases on to our customers,” said TWC, citing its own platform, DirecTV and satellite rival Dish Networks, which recently dropped AMC’s channels in a carriage dispute.

“We will continue to stand up for consumers against programmers’ outrageously large price increases that serve no purpose other than to line network pockets at our customers’ expense.”

Hearst Television president David Barrett hit back: “Warner Cable is refusing to participate in a negotiating process that has enabled us to conclude more than 150 agreements, without service interruptions, in recent months,” he said.

He criticised TWC for conducting a “public relations bandwagon” that included “various unrelated negotiations with programme providers.”

Andrew McDonald

TAGS: Cable TV, Carriage, Channel distribution
PEOPLE: David Barrett
COMPANIES: AMC, DirecTV, Dish, Epix, Hearst, MTV, Nickelodeon and Comedy Central, Time Warner Cable, Viacom
Also, from the Associated Press via The Huffington Post:
TV Channel Blackouts Stall Profits

LOS ANGELES — Channel blackouts such as the one that resulted from the recent spat between Viacom and DirecTV have become far more common over the past three years. Consumers can thank the changing dynamics of the entertainment industry.

Media companies such as Viacom and Disney have become steadily more profitable since the gloom of the recession lifted in early 2010. But the cable and satellite providers that pay to carry their channels have seen profitability virtually stagnate as they fight each other for subscribers.

The squeeze has prompted distributors such as Dish and DirecTV to revolt against higher programming costs. Consumers are left in the crossfire.

DirecTV subscribers haven't been able to view Viacom channels such as Comedy Central, MTV, Nickelodeon and VH1 since Tuesday, when the two companies failed to reach a contract agreement over content fees. The companies are still negotiating, but the channel blackout for consumers has continued through the weekend.

The industry's cost pressures mean such fights are likely to continue.

"I think this is the new normal," says Barton Crockett, an analyst with Lazard Capital. "It's getting to be a little bit more of a battle between life and death for these guys."

The rising number of disputes is largely the result of the stagnant market for pay television. Simply put, there aren't many new households being formed in the sluggish economy, and those who want to pay for TV already do. Some 101 million American households subscribe to cable or satellite service. That's about 87 percent of homes, a proportion that has remained unchanged since 2009, according to Leichtman Research Group, which studies media and entertainment.

TV distributors pay media companies a few cents per channel per subscriber each month. In turn, they try to sell packages of channels for more. As costs for those channels rise, so do monthly service bills, but not always by enough to offset the increasing fees cable and satellite providers are paying to media companies. In addition, distributors spend money on special promotions to woo subscribers from competitors. As a result, some companies' expenses are rising faster than revenue.

That has prompted cable and satellite service providers to fight back against cost increases, even when it means blacking out channels until they can eke out a better deal. Satellite TV companies like Dish and DirecTV are in an even tighter squeeze than cable companies because they can't make up for higher costs by providing Internet or phone service.

Major cable and satellite TV distributors DirecTV, Dish, Time Warner Cable, Cablevision and Charter have increased profitability over the last few years, but that's tapered off, according to an Associated Press review of FactSet data.

Back in December 2009, they kept 15 cents of profit after subtracting operating expenses from every dollar of services they sold. That grew to 19 cents last September. But since, cable and satellite companies haven't found a way to wring more profitability from their business.

Meanwhile, prominent media companies that produce and bankroll the shows – Disney, Time Warner, News Corp., Viacom, Discovery, CBS and AMC – have kept expanding their profit share. They grew operating profits from 16 cents to 19 cents per dollar over the same period. That kept climbing to 20 cents per dollar by March.

Media companies have posted gains in part by extracting higher fees from distributors in bare-knuckle contract negotiations. Those gains have come directly at the distributors' expense.

To be sure, each company is different. Disney, for instance, has assets such as theme parks that skew the analysis.

But distributors are no longer enjoying a post-recession bounce. The media companies are. These diverging fortunes have coincided with an outsized revolt by distributors.

In the first six and a half months of this year, 22 fee disputes involving the price of broadcast TV signals have caused channel blackouts, according to the American TV Alliance. That's up from 15 blackouts in all of 2011. There were just four in 2010.

Dish Network Corp. dropped AMC Networks Inc. channels on July 1, two weeks ahead of the premiere of the final season of "Breaking Bad" on Sunday. DirecTV dropped more than a dozen Viacom Inc. channels on July 10. Time Warner Cable Inc. gave up on a Fox Sports channel covering the San Diego Padres in April and on July 9 it let 15 Hearst television stations go dark, complaining of a four-fold fee hike demand.

Distributors say they must hold the line on their biggest expense _programming_ even if they risk having customers defect.

"I don't think the industry can sustain this kind of behavior," says DirecTV's executive vice president of strategy, Derek Chang, who accuses Viacom of trying to raise rates by 30 percent. "Ultimately, it'll drive costs up to the end user."

Viacom argues that DirecTV is out of step with higher-paying competitors now that its seven-year-old contract has ended.

Amid the war of words, one thing is clear: the price of TV is going up.

People already have been paying more and more. In April and May, 1,369 Americans who were surveyed by the Leichtman Research Group reported that their monthly TV bill rose an average of 7 percent from a year ago, to $78.63. That's largely in line with annual single-digit percentage increases historically.

What's different for distributors lately is that they also have to pay for broadcast TV station signals, which they used to get for free in exchange for carrying upstart new channels. In recent years, broadcasters like CBS have demanded cash from TV distributors for broadcast signals, even though consumers who go through the trouble of setting up an antenna could get them over the air at no charge.

Such "retransmission fees" are expected to double industry-wide from $1.8 billion this year to $3.6 billion in 2017, according to research firm SNL Kagan.

"That's an expense that really didn't exist five or 10 years ago," says Leichtman Research Group's president Bruce Leichtman. "That's putting the biggest stress on the system."

The battle ends up hurting consumers the most.

Russell Hawkins, a 36-year-old food company marketer in Clinton, Mich., says that because of the dispute between Dish and AMC, he's decided to end his four-year relationship with Dish and has asked his Internet provider, Comcast Corp., to hook up cable TV in a week. He had no problems paying $70 a month, but the prospect of losing AMC was too much.

"They can't be dropping channels on people," he says.

Now he'll save $40 a month by getting Internet and phone service bundled, and Comcast threw in HBO and Showtime for 2 years for free. His friends are contacting him about how to get the same deal. "A lot of others are going to do the same thing."

David Jacobs, a 48-year-old social media consultant in Damascus, Ore., says he signed up with Dish just six months ago to pay for upwards of 100 channels for around $50 a month. But now, he's locked into a two-year contract and will have to pay hefty penalties if he cancels. He'll now have to scramble to find a way to watch the premiere of "Breaking Bad," his favorite show, which airs on AMC.

AMC has offered to stream the episode free online for Dish subscribers. But he's not sure what to do. His options include paying extra for a download from Apple's iTunes or, or resorting to an unauthorized download from a pirate site.

"These are big multimedia corporations," Jacobs says. "But me – the little guy who's struggling every day to get by and live life – I'm left holding the bag. That's what makes me the most angry."
Also, from the Lost Angeles Times:
Nickelodeon ratings tumble from loss of carriage on DirecTV

"SpongeBob SquarePants" has taken a hit from losing DirecTV viewers. (Nickelodeon / July 16, 2012)
Ratings for Viacom's Nickelodeon have fallen dramatically in the days since the channel was dropped from satellite broadcaster DirecTV over a fee dispute.

On July 10, the last day Nickelodeon had distribution on DirecTV, its total day audience was about 1.8 million. On July 11, that figure fell 33% to 1.2 million. On Friday, the average was up slightly to 1.3 million.

Losing carriage on DirecTV couldn't have come at a worse time for Nickelodeon. The cable network, which caters its programming to kids and teens with shows that include "SpongeBob SquarePants" and "Dora the Explorer," has seen its audience shrink over the past year while rival Disney Channel has made gains.

While talks are ongoing between DirecTV and Viacom, neither side has indicated that a deal is near. Viacom took out a full-page ad in the Los Angeles Times today encouraging DirecTV subscribers to switch services.

A Viacom spokesman noted that the ratings drop is not surprising given how popular Nickelodeon is on DirecTV. "It's the most watched cable network on DirecTV," the spokesman said.

Other Viacom channels have also seen a loss of viewers. MTV's total day average went from almost 500,000 viewers on July 10 to 273,000 on July 13, a 43% dip. VH1 has dropped almost 30% of its audience and Comedy Central is off 21% for the same period.
Also from the Lost Angeles Times:
Nickelodeon ratings down 20% after DirecTV drops network

The kids' channel is one of several Viacom-owned networks that have disappeared from DirecTV viewers' homes as the companies argue over a new distribution deal.

SpongeBob SquarePants is getting the life squeezed out of him.

Ratings have plummeted more than 20% at Nickelodeon, home of "SpongeBob SquarePants," "iCarly" "Dora the Explorer" and other popular shows, in the week after satellite broadcaster DirecTV stopped carrying the kids' channel.

Other Viacom Inc.-owned networks, including MTV, Comedy Central and VH1, have also seen their ratings fall since disappearing from the homes of about 20 million DirecTV subscribers.

The two companies have been arguing over terms for a new distribution deal. DirecTV has said the long-term agreement that Viacom is seeking is an increase in value of $1 billion over the previous contract. Viacom countered that the number is "significantly less than that."

The battle has been particularly nasty. Viacom has been running ads in print, television and radio using its TV characters to encourage DirecTV consumers to find a new pay-TV provider. DirecTV has fired back that Viacom is trying to gouge its subscribers and that "moms and dads are already fed up with Viacom using SpongeBob and Dora to frighten their children."

The situation may only get worse. A top Viacom executive said Wednesday that the company had stopped negotiating with DirecTV.

"I really don't see any end in sight, truthfully," said Denise Denson, Viacom's executive vice president of content distribution. "Nothing about negotiating with them is productive."

Whether that is a negotiating ploy is likely to become apparent in the days ahead. A spokesman for DirecTV said it had a deal to put the channels back on its service when Viacom pushed for carriage of its movie channel Epix at a cost of more than $500 million as part of the pact.

"We know our customers don't want to pay such an extreme price for an extra channel.... We stand ready and willing to work with Viacom to get this done and, once again, ask Viacom to do the right thing and restore these channels to our customers immediately," the DirecTV spokesman said.

Fights between programmers and distributors are nothing new, but usually agreements are reached without channels being dropped. Once that point of no return is crossed, however, negotiations can drag on as neither feels deadline pressure to reach an accord and both sides start to dig in their heels. In 2010, News Corp.'s Fox went off Cablevision in the New York City area for two weeks until a new deal was struck.

In the short term, it is Viacom that is absorbing more punches. Nickelodeon's rivals have seen significant ratings gains in the days since DirecTV stopped carrying the channel.

Walt Disney benefiting the most from Nickelodeon's woes. Not only has Disney Channel's audience jumped 20%, DirecTV has also added Disney Jr., a relatively new network, to its service to help fill the void left by Nickelodeon. The numbers for Disney Jr. have been solid enough that DirecTV said it will continue to make it available to all of its subscribers even after it reaches a new accord with Viacom and brings back Nickelodeon.

For Nickelodeon, the loss of DirecTV couldn't come at a worse time. The cable network has already seen its ratings fall sharply this year. A long, drawn-out fight with DirecTV may make it difficult for the channel to fully recover.

"The central question is: How much of that audience will come back when Nickelodeon returns?" said Sanford C. Bernstein analyst Todd Juenger. "Certainly a percentage of the kids will get hooked on Disney programming and stay with it."

Other, smaller kids' channels such as the Hub and Sprout are also picking off discarded Nickelodeon viewers. The Hub said its total audience was up more than 100% and among kids 6 to 11 it saw a gain of almost 80%. Sprout's audience grew more than 60%.

"We're definitely getting a spike from this," Sprout President Sandy Wax said.

DirecTV could eventually face blow-back from the fight with Viacom as well. Although DirecTV spokesman Robert Mercer said the El Segundo company has lost only a few subscribers since the Viacom channels came off, that could change if no new deal is imminent.

"Disconnects should be a greater issue as the dispute drags on," Greenfield said in a recent report. Although Viacom is "clearly in pain," Greenfield noted that it will be easier for the programmer to recapture lost advertisers and viewers than for DirecTV to replace lost subscribers.

Viacom's Denson said the New York company will start aggressively persuading other cable and satellite operators that carry its channels to use that to market against DirecTV.

Some rival distributors, including Cox Cable, have made a point of publicly siding with DirecTV in its battle with Viacom. But others are finding subtle ways to let consumers know there are other options. Satellite broadcaster Dish Network Corp. has ads on Facebook that include characters from popular Nickelodeon, MTV and Comedy Central programs. SomeComcast Corp.cable systems are running radio ads encouraging consumers to switch pay- TV providers.

"They are actively marketing behind the scenes, taking advantage of the situation," Denson said. "Everyone is starting to play against DirecTV."
Also from the Lost Angeles Times:
Viacom and DirecTV continue to negotiate but remain far apart

Viacom and DirecTV are still trying to hammer out a new deal that will bring MTV, Comedy Central, Nickelodeon and more than a dozen other channels back to the satellite broadcaster.

But in between the talks, the two sides are still taking shots at each other.

Interviews with the chief negotiators for both parties reveal that there is still a wide gulf dividing the companies.

"Their ratings have dropped on a lot of their major networks. It's hard to justify significant increases," said Derek Chang, a DirecTV executive vice president. DirecTV claims that Viacom wants an increase of 30% to carry its channels, which translates into $1 billion.

Viacom's Denise Denson, executive vice president of content distribution, countered that the media giant's channels represent 20% of all viewing on DirecTV and yet "we get about 5% of their license fees. That's the real crux of it."

DirecTV's Chang said there is more than money dividing the two companies. He does not like that Viacom puts much of its content on its websites for free.

"It certainly undermines the value of what they are selling to us," Chang said, adding, that "if people are viewing their stuff online and not on our platforms, why would we pay as much?"

Denson responded that Viacom's research has not shown that free offerings of its shows online have hurt the ratings for its cable channels.

"We use it as a marketing tool to drive people back to our channels," Denson responded when asked why the company offers so much content for free online.

As for reaching an agreement, both sides expressed optimism that it will happen but neither would specify when.

"We don't expect this to last too long," Chang said. "We're in open discussions and working hard to try to close a deal," Denson added.

Chang said DirecTV is willing to put the channels back on while talks continue, but Viacom isn't interested.

For DirecTV subscribers wondering about getting a rebate or some sort of discount for the days they were deprived of Viacom's channels, Chang said that would be determined "down the road."
Also, from The Hollywood Reporter:
Analysts Weigh in on Viacom-DirecTV Carriage Dispute

One analyst calls the stand-off a "lose-lose" situation, while another one says it could be "a serious mistake" for any pay TV operator to not carry the Viacom channels.

Analysts late Tuesday started to weigh in on the networks carriage dispute between entertainment conglomerate Viacom and satellite TV giant DirecTV, predicting who would be hit harder by any fallout if the two sides don't reach an agreement quickly.

Most highlighted Viacom's broad viewership strength despite near-term ratings challenges at some flagship networks. But before Viacom channels, including MTV, Nickelodeon and Comedy Central, went dark in DirecTV homes at midnight ET, Evercore Partners analyst Alan Gould described the showdown as a lose-lose situation for the two companies.

"We estimate that DirecTV represents 12-13 percent of Viacom's domestic media affiliate and advertising revenue," he wrote in a report. "Viacom claims its programming represents 20 percent of the viewing on DirecTV, so we would assume DirecTV would lose some subscribers, particularly families that want Nickelodeon."

He estimated that Viacom generally receives about $3 per subscriber per month for its 17 channels, or 26 when including HD feeds. Given their just-ended carriage deal is seven years old, DirecTV likely pays less than $2.50 per subscriber per month, he added.

In his worst-case scenario, Viacom's channels would be off DirecTV for a full year. "We estimate the impact would be about $300 million after-tax to Viacom, or 63 cents per share, a 13 percent hit to our fiscal year 2013 [earnings] estimate," Gould said. "If the channels were off for a year, it would likely reduce Viacom's aggressive share repurchase plan."

Credit Suisse analyst Spencer Wang also warned that Viacom could be exposed to risk in the carriage showdown. Viacom draws a big audience, but doesn’t own a broadcast network, broadcast stations or a major sports asset, which peers like News Corp. can use for leverage during carriage and re-transmission consent talks, he argued.

Nomura's Michael Nathanson said though that Viacom should end up getting things its way, highlighting that of total live TV viewership, Viacom has eight channels in the top 30.

"We expect Viacom to ultimately receive affiliate fee step-ups of at least high single digits with DirecTV over the life of the deal, consistent with prior guidance," he said. "We do not believe Viacom is worried about the short-term quarterly impact, and although companies try to avoid public negotiations, we believe Viacom should be able to use this spotlight to prove its affiliate fee worth."

He entitled his report "Will DirecTV Make Dora Cry?" in a reference to Nickelodeon character Dora the Explorer, which the company showed crying during a carriage dispute with Time Warner Cable a few years ago. "Viacom ultimately largely received the increases they were seeking during the company’s Time Warner Cable affiliate fee negotiations on New Year’s Eve Dec. 31, 2008," Nathanson highlighted.

BTIG analyst Richard Greenfield also wondered if DirecTV CEO Mike White was risking too much with a stand-off with Viacom. "Will Mike White Make the Same Mistake as Charlie Ergen?" his report asked in reference to the Dish chairman who has been in various high-profile carriage battles.

"While Viacom’s ratings have definitely softened from where they were 12-18 months ago (MTV's Jersey Shore highs along with Nick's share loss to Disney Channel), we believe a multichannel video programming distributor would be making a serious mistake to not carry the Viacom suite of channels," Greenfield wrote. "While the demographics of Viacom’s cable network viewers may be the most exposed to finding Internet-based alternatives, the viewership of online programming is still dwarfed by the size and scale of Viacom’s content."