US viewers breath sigh of relief as Viacom, DirecTV reach deal

By Yinka Adegoke and Liana B. Baker

Reuters–DirecTV Group’s 20 million U.S. subscribers are getting back their favorite shows after the satellite TV provider reached a deal to restore Viacom Inc.’s networks, but the size and scope of the high-profile dispute may have changed the nature of future programming battles. The loss of 26 networks to 20 million homes for nine full days means the size, length and scope of this programming blackout was unprecedented to date in the U.S. pay-TV industry. Contentious relationships between program distributors and program makers are on the rise as the industry’s growth appears to have peaked. “The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations,” said Bernstein Research analyst Todd Juenger. “For the first time in memory, it was the distributor that won the public relations war.” While distributors typically take the brunt of the complaints about network blackouts, DirecTV argued that the increasing number of disputes with other distributors had educated customers that they would face the same problems with their rivals. “By showing their willingness to take a blackout, and arguably winning the battle for the hearts and minds of their customers as a result, DirecTV may extract better terms from other programmers down the road,” said Juenger. Viacom said it restored all of its cable networks, including Nickelodeon, Comedy Central, MTV and BET, which became unavailable to DirecTV customers from July 10. The channels went off air after DirecTV balked at what it saw as a steep increase which it said Viacom was demanding. The companies did not disclose the financial terms of the new contract. But people familiar with the talks said DirecTV will pay Viacom around US$600 million in the first year of the seven-year contract with subsequent mid-single digit percentage increases. That would be a 20-percent increase over the previous contract’s US$500 million a year that was publicly stated by DirecTV Chief Executive Mike White. DirecTV previously said Viacom sought a 30-percent increase in carriage fees, equaling US$1 billion over five years — a boost that DirecTV said was not justified. Viacom countered that its networks represented about 20 percent of all viewing on DirecTV but accounted for less than 5 percent of its programming costs.