SpongeBob blackout looms for DirecTV subscribers

Reuters News
Posted: Jul 10, 2012 10:39 AM
SpongeBob blackout looms for DirecTV subscribers

By Jennifer Saba

(Reuters) - DirecTV customers may not see SpongeBob, Snooki or Jon Stewart after midnight on Tuesday because of a heated impasse taking place between the largest U.S. satellite TV provider and Viacom Inc, the company behind the popular cartoon, reality series and political talk show.

In a blog post on Viacom's website, spokesman Mark Jafar wrote that despite Viacom's "best efforts" DirecTV rejected proposals to renew their contract. Nearly 20 million DirecTV customers will not have access to 26 Viacom channels including MTV and Nickelodeon if a new deal isn't struck by midnight Tuesday.

The stand off is the latest saga taking place between media companies and cable and satellite TV providers over the cost of content. These providers pay a fee to media companies that allows them to carry channels such as MTV. Programming is the single biggest cost for distributors and in recent years they have taken a hard line against what they view as unreasonable "carriage fee" increases by content companies like Viacom.

On July 1, AMC Networks, the company behind "Breaking Bad," "The Walking Dead," and "Mad Men" was removed from the Dish Network after the two companies could not reach a new contract.

The possibility of DirecTV dropping Viacom's networks was foreshadowed in a mid-June note by Bernstein Research analyst Todd Juenger.

Citing falling ratings at Nickelodeon and other Viacom networks, Juenger wrote, "We believe it is no longer inconceivable that a distributor would drop Viacom, or at least engage in a public battle with them over price increases."

Viacom is in the process of negotiating a new deal with DirecTV to replace its current seven year contract after it expires. Viacom, controlled by billionaire Sumner Redstone, described the contract as "ancient by the standards of the ever-evolving media industry - which means that DirecTV has enjoyed way below market rates for Viacom's networks for a very long time."

DirecTV said that Viacom "now insists" to be paid 30 percent more -- or about a billion extra dollars -- for the same programming.

"If Viacom wants so much more, then we believe your family needs to be able to choose which Viacom networks you want to pay to keep and which ones you don't," DirecTV said on a question and answer section on its website.

DirecTV is alluding to a debate currently raging among content owners and buyers about the ability to cherry pick channels. As it stands now, content providers typically package all of their channels together -- known in the industry as "bundling" -- rather than let customers choose the ones they want to watch.

"To be clear, we have offered Viacom increased fees for their networks going forward; we just can't afford the extreme increases they are asking for," DirecTV said.

This is not the first time a distributor has threatened to black out Viacom's channels due to a contract dispute. In 2004, Dish actually dropped Viacom cable networks after the two sides failed to reach agreement on a new distribution deal. But, citing the popularity of Viacom's channels, BTIG analyst Richard Greenfield noted the black out only lasted "for about 46 hours before Dish caved to Viacom's demands."

"It will be interesting to see whether DirecTV's [CEO] Mike White wants to go to war with Viacom and make the same mistake Charlie Ergen made 8 years ago. Hard to imagine DirecTV without Nick and Nick Jr.," Greenfield wrote in a blog post early Tuesday.

(Reporting By Jennifer Saba; Editing by Peter Lauria, Sofina Mirza-Reid and Andrew Hay)