Viacom, DirecTV, And The Future Of TV Blackouts

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Viacom and DirecTV ended their dispute over carriage fees on Friday, which saw the return of 17 Viacom channels on the cable satellite service. But who won, who lost, and what does the resolution mean for DirecTV, and for the rest of the industry? Given that Viacom reportedly didn’t get what it wanted in the negotiations, it probably will mean even more blackouts as time goes on.

Viacom wasn’t available to DirecTV customers for nine days over the course of the blackout, and in that time key channels like Nickelodeon saw inevitable ratings declines. Ratings at the childrens network fell some 20 percent during that time. Meanwhile, Disney, the channel DirecTV replaced Nickelodeon with, saw its ratings increase a comparable amount. According to Bernstein Research analysts Todd Juenger and Craig Moffett, that implies it was Viacom which came back to the bargaining table and attempted to end the blackout.

So what did DirecTV actually win? It’s now reportedly faced with a 20 percent increase for Viacom channels, or an additional $600 million, according to Bloomberg. But, considering that Viacom was reportedly demanding a 30-percent increase, DirecTV seems to have won this round of negotiations.

More importantly, Viacom was pushing Epix as part of its bundle of channels, asking an additional $500 million for the channel. It’s not quite the great unbundling that DirecTV CEO Mike White seemed to be talking about in last weekend’s message to subscribers. But by not being pressured into additional fees for a channel that its consumers may not even want, DirecTV’s stand against Viacom seems fairly successful.

While blackouts of this type are becoming increasingly common, usually it’s the distributor — the cable or satellite provider — who ends up capitulating and agreeing to the programmer’s terms. In a research note sent to clients, the Bernstein analysts wrote:

“The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations. For the first time in memory, it was the distributor that won the public relations war.”

It’s too early to tell what the overall effect will be one DirecTV’s customer base, and how many subscribers fled to other service providers or just quit altogether. Since the blackout began in July, executives won’t have to talk about third-quarter defections on DirecTV’s second-quarter conference call. That is, unless those defections will have a material impact on the company’s forecast for this quarter.

It’s also too early to say whether or not Viacom ratings will bounce back, now that its networks have been reinstated. Summer isn’t a great time for TV anyway, with kids out of school and families going on vacation and generally getting out of the house. But Viacom was already feeling some ratings declines, specifically at Nickelodeon, even before its channels went dark for DirecTV’s 20 million subscribers.

But clearly this shows that other programmers who will soon be negotiating with DirecTV — like Viacom sister CBS — should probably expect to be met with similar resolve in the case of a dispute over fees. Juenger and Moffett write:

“More significant, perhaps, is the signal that DirecTV has sent to other programmers. 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.”

All indications are that the DirecTV-Viacom spat was seen as a positive for other cable and satellite providers as well, who might be emboldened to also take the stand against perpetual price increases and further bundling of networks that their subscribers don’t want. The fact that cable companies like Time Warner Cable actually urged subscribers not to switch providers during the most recent blackout just kind of shows how there’s at least some solidarity between distributors.

That’s bad news for programmers, who might see growth in their per-subscription fees slow… And it’s especially bad news for consumers, who can probably look forward to more blackouts, regardless of who their service provider is. But for an industry that is beginning to approach an affordability crisis, cable companies are facing an acute need to control costs.


  • VIACOM
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Viacom, short for “Video Audio Communications”, is an American media conglomerate with various worldwide interests in cable and satellite television networks (MTV Networks and BET), and movie production and distribution with Paramount Motion Pictures Group.

The new Viacom conglomerate was finalized in September of 2006 is considered to be the “high-growth” side of the much larger former Viacom. The former Viacom was renamed CBS Corporation, from which this firm was split off on December 31, 2005.

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DIRECTV (NASDAQ: DTV) is the world’s most popular video service delivering state-of-the-art technology, unmatched programming, the most comprehensive sports packages available and industry leading customer service to its more than 25 million customers in the U.S. and Latin America. In the U.S., DIRECTV offers its 18.56 million customers more than 130 HD channels and Dolby-Digital 5.1 theater-quality sound (when available), access to exclusive sports programming such as NFL SUNDAY TICKET, award winning technology like its DIRECTV DVR Scheduler and…

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