Viacom, DirecTV talks over programing fees continue

DirecTV (DTV) Chief Executive Officer Mike White said talks are continuing with Viacom (VIAB) Inc., even as the two sides remain “pretty far apart” in a dispute over programming fees.

“We’re happy to do a fair deal,” he said today from the Allen & Co. conference in Sun Valley, Idaho. “We’re talking.”

Viacom’s 26 channels, including MTV, Nickelodeon and Comedy Central, went dark for almost 20 million DirecTV subscribers just before midnight yesterday after the companies failed to reach a new programming-fee agreement. DirecTV said that Viacom demanded the networks be dropped from its service, which ranks No. 1 in the U.S. satellite-TV market.

The standoff marks the latest fee tussle between a pay-TV provider and program supplier. Such fights have blacked out millions of subscribers in recent years, including 14 million Dish Network Corp. (DISH) customers who lost access to AMC Networks Inc. (AMCX) last month. Viacom said on its blog that its programs amount to 20 percent of the audience at DirecTV. The satellite provider, meanwhile, cited falling ratings at Viacom’s channels as an issue in the dispute.

“It has been inconceivable that any distributor could drop Viacom’s networks, mostly because of Nickelodeon,” Todd Juenger, a Sanford C. Bernstein & Co. analyst in New York, wrote in a note in June. “But ratings are down, often significantly, at networks representing 71 percent of Viacom affiliate fees.”

$1 Billion
White said Viacom is demanding a fee increase of more than 30 percent, amounting to more than $1 billion in additional costs over five years.

“We offered a hefty increase,” he said today in the interview, without being specific. “We always said we’ll pay a fair price consistent with other large distributors.”

Viacom, based in New York, fell 0.3 percent to $46.73 at the close in New York. The Class B stock has gained 2.9 percent this year. DirecTV, up 13 percent this year, declined 1.1 percent today to $48.15.

Viacom President and CEO Philippe Dauman, questioned at the Allen & Co. conference, said he wouldn’t negotiate in public.

“As you can see, we have negotiated with every other pay- TV operator, without problems,” Dauman said. “Our record speaks for itself.”

The parties have been talking for several months and extended their seven-year agreement past the original June 30 expiration while discussions continued, Viacom said. During that time, Viacom allowed its channels to stay on DirecTV.

‘Deeply Disappointed’
DirecTV dropped Viacom’s channels about 10 minutes before midnight with no warning, Mark Jafar, a Viacom spokesman, said in a blog post. He said El Segundo, California-based DirecTV “refused to engage in meaningful conversation.”

“We are deeply disappointed that DirecTV dropped Viacom’s channels before our midnight deadline this evening, severing our connection with its nearly 20 million subscribers nationwide,” Jafar said. “We proposed a fair deal that amounted to an increase of only a couple pennies per day, per subscriber, and we remained willing to negotiate that deal right up to this evening’s deadline.”
Viacom today also began limiting the number of programs it lets people watch for free at its websites, after DirecTV created a navigation tool to help customers find the shows they’ve lost, according to Meghan McLarty, a DirecTV spokeswoman.

Channel Bundling
White said he isn’t looking to break up Viacom’s bundle of channels and buy them individually, even though his customers would prefer not to pay for networks they don’t watch.

“Consumers ask us to do that all the time,” he said. “I don’t think that’s likely because I don’t think the media companies in general would be willing to do that.”

The sluggish economy and online services such as Netflix Inc. (NFLX) and Hulu LLC also may make satellite customers less likely to pay higher rates, White said.

“In this economy, consumers are struggling,” he said. “Their incomes aren’t growing at those rates, and it’s tough for the average consumer. That’s what we care most about.”

Viacom said its fees account for less than 5 percent of the satellite service’s programming expenses, and that DirecTV “enjoyed way below market rates for Viacom’s networks for a very long time.”