Viacom-DirecTV cost dispute highlights concern over pay-TV's future

SpongeBob SquarePants is one of Viacom's popular shows.
SpongeBob SquarePants is one of Viacom's popular shows.
Posted: July 14, 2012

The programming-cost dispute between DirecTV and one of the nation's largest programmers, responsible for the Nickelodeon, MTV, and Comedy Central channels, showed no sign of abating on Thursday as a top DirecTV executive said in an interview that Viacom Inc.'s proposed 30 percent hike was part of an "industry epidemic."

DirecTV, the nation's second-largest pay-TV operator with 20 million subscribers, dropped more than a dozen Viacom channels late Tuesday when the two companies seemed wide apart on new contract terms.

The public flap highlights the deepening concern among pay-TV executives that monthly bills are reaching unsustainable levels for consumers, who could abandon traditional pay-TV companies for cheaper online video options. Programmers say they are seeking higher remuneration for what they consider valuable entertainment. A Viacom spokesman did not return phone calls Thursday.

A fear for DirecTV would be that people will abandon DirecTV because of the loss of Viacom channels, whose popular programs include SpongeBob SquarePants, South Park, and the Daily Show. The Wall Street Journal has reported that Viacom channels account for 20 percent of viewing on DirecTV but less than 5 percent of the satellite-TV operator's programming costs.

Derek Chang, DirecTV's executive vice president of content strategy, said on Thursday that there had been no impact on DirecTV's business and that he believed subscribers would be patient because of the economic stakes. The nation's largest pay-TV operator is Comcast Corp., with about 22 million subscribers. Comcast could benefit in the dispute if DirecTV subscribers seek alternate pay-TV operators that are still distributing Viacom channels.

Viacom was seeking an immediate 30 percent hike in programming costs as the ratings in many of its channels have declined, Chang said, noting that DirecTV currently pays Viacom more than $500 million a year for content. Viacom's proposed contract would add about $1 billion in programming costs over five years, DirecTV officials have said.

"The No. 1 priority is to get the channels on fair economic terms for our customers," Chang said. If it couldn't get Viacom's bundle of channels on those terms, Chang said, DirecTV would be willing to offer Viacom channels to its customers on a-la-carte basis, which would allow customer to select those Viacom channels they would like to purchase. Such a model would likely work against the programmer because people are not likely to buy the bundle of Viacom channels they now receive as part of their TV package.

Chang described Viacom's proposal as part of "an industry epidemic in which programmers have been seeking outsized increases."

Contact Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.

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