DirecTV drops more than a dozen Viacom networks over fee dispute

By Joe Flint, Los Angeles Times –

LOS ANGELES — As Mike Sorrentino, of MTV’s “Jersey Shore,” would put it, DirecTV and Viacom have a situation here.

DirecTV dropped more than a dozen cable networks owned by Viacom including MTV, Nickelodeon, BET and Comedy Central on Tuesday night after the satellite distributor was unable to reach a new fee arrangement with the media giant to continue carrying its channels. Although the two sides are continuing to negotiate, analysts said the dispute could drag on for weeks.

“I think it’s going to take a while,” said Nomura analyst Michael Nathanson. “It shouldn’t have gotten to this level, and it did.”

That means almost 20 million DirecTV subscribers around the country may have to get used to life without “Dora the Explorer,” “Snookie and Jwoww,” “The Daily Show” and other popular programs from Viacom’s networks.

At issue are price increases Viacom wants to extract from DirecTV to keep carrying its cable channels.

“Viacom is pushing DirecTV customers to pay more than a 30 percent increase, which equates to an extra $1 billion,” Derek Chang, DirecTV’s executive vice president of content, strategy and development, said in a statement. Chang argued that the increases are out of line, given declining ratings for many of Viacom’s channels over the last year, including childrens network Nickelodeon.

Chang said the company was willing to keep the popular channels on its systems while talks continued but couldn’t get permission from Viacom.

“Let’s be clear: Viacom took these channels from DirecTV viewers,” Chang said.

Viacom countered that the increase it seeks is “a fair deal that amounted to an increase of only a couple pennies per day per subscriber.”

Neither side would specify the costs of carrying each channel. But according to industry consulting firm SNL Kagan, the price tag for Viacom’s channels ranges from about 50 cents per subscriber per month for Nickelodeon to 16 cents per month per subscriber for Comedy Central. The most expensive cable channels are ESPN, which costs more than $5 per subscriber per month, and TNT, which runs about $1 per subscriber per month.

Nomura’s Nathanson said he believes DirecTV’s previous deal was “very favorable” and Viacom is trying to get rates closer to what other big distributors are paying.

Price is not the only issue for DirecTV. The satellite broadcaster is also unhappy with how much content Viacom puts online for free. Pay TV distributors such as DirecTV are pressuring programmers to avoid putting a lot of content online for free out of fear that consumers could eventually decide to cut the cord to their pay TV service.

“This will be a big source of push-back from the distributors,” said Sanford C. Bernstein analyst Todd Juenger, who added that he finds it “baffling” how much content Viacom gives away free online.

On Wednesday, Viacom stopped free online offerings of some of its shows, including Comedy Central’s “The Daily Show” and “The Colbert Report.”

Carole Robinson, a Viacom spokeswoman, said the company had “temporarily slimmed down our offerings as DirecTV markets them as an alternative to having our networks.”

Although feuds between programmers and distributors are common, it is rare for channels to get pulled. Once that happens, there is a tendency for both sides to dig in their heels.

Viacom and DirecTV each have potential headaches the longer the dispute goes on. Viacom could see its ratings take a hit from the loss of DirecTV, while the satellite company has to worry about its subscribers looking for other options to get their favorite channels.