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Summary:

Bernstein Research’s Todd Juenger and Craig Moffett publish some of the best data yet on this rather epic carriage battle. It will take both sides a long time to come to an agreement, they predict, and the solution will come through Viacom curtailing its digital activities.

directv-drops-viacom-s-channels-before-midnight-deadline

Now entering its second week, the big carriage battle between DirecTV and Viacom will ultimately be decided, but not for some time. And look for streaming rights to be the lynchpin when a deal does get made.

Those predictions come courtesy of Bernstein Research senior analysts Todd Juenger and Craig Moffett, who on Monday published a report outlining how they see this rather landmark carriage impasse unfolding.

Also read: DirecTV CEO – “Viacom is forcing this bundle on you, not us”

For now, these analysts believe, the rift is wide. And they’ve published some of the best speculative data on the subject yet to illustrate the point.

There are few publicly confirmed data points in this rift, but Juenger and Moffett speculate that under the just expired carriage deal, DirecTV paid about $500 million in affiliate fees to Viacom, or around $2.08 per its 20 million subscribers — a good deal, considering Viacom averages around $2.50 per subscriber for the rest of its affiliate deals.

They believe Viacom is asking for a one-time fee increase of 30 percent in the first year of a new five-year arrangement, plus annual increases of 8 percent over the remaining four years. This would result in a compound annual growth rate of 12 percent and increase its per-DirecTV-subscriber carriage rate by $1.60 to $3.68. The total revenue increases adds up to around $1 billion.

Also read: Fighting DirecTV, Viacom takes down its shows for everyone

DirecTV’s bid, they believe, is for a first-year bump-up of around 12 percent and annual “inflators” of around 4 percent, bringing the per-subscriber nut to around $2.83.

As is typical in carriage disputes, Moffett and Juenger write, the two sides will inevitably settle, on terms closer to Viacom’s than DirecTV’s, with the satellite programmer in the tougher position of having to replace unique programming like Comedy Central’s Daily Show With Jon Stewart.

“This dispute is more than run of the mill for a variety of reasons, however. And may go on a long time,” they add.

For one, the analysts note, there is no natural programming catalyst, like the sudden emergence last winter of soon-to-be former New York Knicks star Jeremy Lin, who almost single-handedly pushed an entrenched carriage dispute between regional sports network MSG and Time Warner Cable in the programmer’s favor, resulting in a deal.

In fact, evidenced by DirecTV’s carriage acquisition last week of Disney Jr., which caters to the same kids 2-5 demographic that Viacom’s Nickelodeon does, the satellite carrier seems to be digging in.

“DirecTV has singled out Viacom as the target for the inevitable battle over affiliate fees that one of the big [multi-channel video program distributors] had to take on at some point.”

However, with Viacom’s 26 channels supplying around 20 percent of DirecTV’s viewing,  it will have to make a deal at some point.

Moffett and Juenger believe that, by Viacom curtailing some of the programming it offers to over-the-top channels — or even crafting exclusive digital deals with DirecTV — a solution could be achieved. DirecTV could save face and claim victory, even though it had to capitulate on fee increases, by saying it’s getting more value out of its investment.

In fact, the key to the deal could rest in Viacom’s decision last week to pull its its in-season programming off streaming channels.

“Perhaps Viacom’s decision to pull its content off the web, while initially a negotiating tactic, will be a catalyst to motivate Viacom to keep that content off permanently,” they wrote. “Surely they don’t want to continually pull it up/down every time they are negotiating a distribution agreement. And surely DirecTV would not be satisfied to have signed an agreement, paying a significant increase for the right to distribute Viacom’s content, only to have Viacom return to making much of that same content freely available to anyone with a high-speed Internet connection (whether they subscribe to a pay-tv service or not).”

  1. When we going to have spongebob and all the Nick shows back kids don’t like cartoon network etc…… let’s get this done now give us the NFL network for free so do something this is ridiculous u acting like 5 years old that’s dumb

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    1. Cartoon Network is amazing. DUDE CARTOON PLANET AND TOONAMI. HECK YEAH CARTOON NETWORK IS BETTER THAN DISNEY. DISNEY KILLED TOON DISNEY/JETIX WITH THAT BULLCRAP XD.

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    2. If Direct Tv gives, they will have to raise monthly fees. Then you will be the one crying like a 5 year old.

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  2. Hurry up today ASAP now

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  3. Hoppin Happy Monday, July 16, 2012

    this makes my job selling Dish network easier… Not only am I getting lots of angry DirecTV customers signed up, but I’m getting more shows off the free internet stream. It’s tough to sell a pay service when so many shows are free to stream.

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  4. janice redding Monday, July 16, 2012

    Please….please will you guy’s work on a deal my kid’s,my grandkid’s andmost of all me put those channel back on we need them……..help,help,help,help

    Thanks

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  5. I’d like to submit a “disagree” with this analysis. The blowback seems to be squarely put upon Viacom for the outage. Outrage by knowledgeable viewers appears to outweigh those that are merely outraged by a factor of 10 to 1.

    As well, Viacom can only exist so long without DirecTV’s revenue and its viewers, which seems to add up to, in some cases, as much as 43% of overall viewership. That’s $2+ billion plus lost ad revenue that’s NOT going into the Viacom coffers. Every day this lingers, Viacom takes a hit with viewers and advertisers. While DirecTV plods merrily along hardly worse for wear. It may hurt them too, but not nearly to the extent that Viacom is eating daily.

    Viacom has already been forced to put their digital content back on Hulu’s free site due to overwhelming response from all fans. Someone had to crack first, and it appears that Viacom is that someone. DirecTV looks more and more like the cowboy in the white hat with each concession.

    DirecTV will end up ponying up some more money, but it won’t be what Viacom is asking for. They have them over a barrel now and they know it, to ultimately give in would be foolish. Since most people don’t use their On Demand service, I’d guess that that’s where the break will be. DirecTV will get the handful of the 26 channels it really wants back, without being able to furnish the digital reruns. And come out looking like heroes to their customer base. Even if their motives aren’t as altruistic as they’d have us believe.

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  6. If this dispute does not get resolved I will be forced to drop DirecTv!! It should be up
    To the consumer if they want to pay or not

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  7. Jonathan McRaney Tuesday, July 17, 2012

    And they say that a class-action suit isn’t possible, because DirecTv (sat providers) don’t fall under any “laws” with their contracts. Well, SOME law of some kind keeps me in contract with them, so some kind of law is being broken by me not getting the channels I signed up to receive nearly a year ago…and if they can’t provide those channels to me, then they are in breach of their own contract.

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    1. And I’m sure you read the entire contract you signed.

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  8. Instead of making customers pay for the music channels, more then ten home shopping channels and random channels that I don’t believe anyone uses; drop those channels, pay whom ever what they want and let us go about our regularly scheduled programming. I have been with DTV for a long time and Yep!, I hate them. I had to drop to a cheaper plan (you know the one right above the jack sh@t plan) and lost 10 channels. You can also bet that all the BS channels were still there. Now, I have lost another half dozen or so. If DTV really cared about “helping” they would actually listen to it’s customers and stop frustrating them. I can’t switch because I’m broke but when I’m not, Comcast here I come! I plan on going with a big package and going HD! I can afford their fees. Over Ten years w/ DTV and they still want to charge $200 for the hd reciever. I know, as a consumer have I no control over this situation and it hurts to know I will be missing 2 or more Workaholics episodes!

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  9. Todd Christensen Wednesday, July 18, 2012

    I know $3 is $3…but if you have the loot to pay for directv you have the extra $3…it’s 3 friggin dollars. If that makes or breaks your monthly finance you may want to loosen up your budget a little bit.

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  10. I can see lots of people getting fed-up paying for TV, with both sides of the fight losing money. The vast majority of programming is reality shows – how horrible.

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