If you have DirecTV service, don’t expect to watch any MTV or Nickelodeon today. Nor Comedy Central, BET, VH1, CMT, Logo, Spike, TV Land, MTV2, VH1 Classic, Palladia, Nick Jr., NickToons, TeenNick, Nickelodeon West, Tr3s, Centric, MTV India, Nickelodeon HD, Comedy Central HD, MTV HD, BET HD, VH1 HD, CMT HD or Spike HD – because DirecTV pulled all Viacom-owned channels after the two companies failed to come to an agreement on licensing fees.
The spat between the two companies boils down to money, of course. But the reality of this corporate battle is far more interesting than a mere quibble over dollars and cents; it gets to the heart of all that is wrong with traditional television service.
Here are the basics of the situation: DirecTV pays Viacom boatloads of cash every year to carry Viacom’s channels — all 26 of them. This time, Viacom wants DirecTV to pay more for the channels – about $1 billion more. DirecTV doesn’t want to pay this. Instead, DirecTV wants to pick and choose which Viacom channels it carries, and leave the rest behind.
“We have been very willing to get a deal done, but Viacom is pushing DirecTV customers to pay more than a 30 percent increase, which equates to an extra $1 billion, despite the fact that the ratings for many of their main networks have plummeted and much of Viacom’s programming can be seen for free online,” said Derek Chang, DirecTV executive vice president of Content, Strategy and Development, in a statement. “Viacom sent us a letter last night that outlined our obligations to remove the channels by midnight or face legal action just as they were falsely telling viewers DirecTV was responsible. Let’s be clear, Viacom took these channels away from DirecTV viewers.”
Viacom claimed in a blog post that the whole thing is DirecTV’s fault, that it offered the satellite television provider a “fair deal,” but that DirecTV “refused to engage in meaningful conversation.”
The dispute highlights the growing discontent between television content providers (like Viacom) and television service providers (like DirecTV). Content providers want to stick to the status quo model of “bundling,” which requires TV service providers to carry a set package of channels. However, TV service providers want to be able to pick and choose which channels to offer, which would allow them to compete more easily with video streaming services like Netflix by charging less for TV service.
Dollars and business sense
Companies like Viacom make money in three ways: advertising revenue on their channels, sales and licensing fees from merchandise based on the shows and movies they create, and fees paid by cable and satellite companies like DirecTV. The more channels a company like Viacom has, the more money it can make. But launching a new channel is only a successful endeavor if it can get the shows on that channel in front of as many eyes as possible, which boosts ratings and increases the amount of money it can generate from ads and merchandising. To do this, companies like Viacom force providers like DirecTV into carrying new or lesser-known channels with the hopes of increasing viewership on those channels, thus boosting revenue.
So from Viacom’s point of view, allowing TV distributors to pick channels a la carte makes no sense – it has invested billions of dollars to create shows and channels. If TV distributors don’t carry these channels, the shows will go unwatched, and Viacom will lose massive amounts of money.
DirecTV, on the other hand, sees that customers aren’t watching particular channels — or are watching shows from these channels online. So it doesn’t want to pay to carry them. Paying less for channels people don’t watch would, theoretically, result in lower subscription costs for customers. This is good for DirecTV, since it is now competing with options like Netflix, which charges just $8 a month for service while DirecTV charges a minimum of about $30 or $40 for service. Sure, you get a lot more from DirecTV for that money, but more and more people are finding that video streaming services are a better deal. And that means DirecTV needs to find a way to cut costs so it can cut the price of access for customers. Better prices means more customers, which in turn means more money for DirecTV.
Of course, even if DirecTV got its way in this whole Viacom debacle, it wouldn’t mean that customers would also have the luxury of choosing channels a la carte – which is where the television industry should ultimately go. Still, allowing such a deal between TV content providers and TV service providers is the first brick that must fall before the whole, outdated wall that is the television industry’s business model can crumble, and then be rebuilt for the Internet Age. None of this is to say that DirecTV is fighting for you, the customer — it’s not. DirecTV wants to make as much money as possible; that’s its only mission. In this case, however, it just so happens that what is good for DirecTV is, ultimately, good for TV viewers.
So if you turn on your television today and find “SpongeBob SquarePants,” or “The Colbert Report” missing, resist the urge to lash out at DirecTV – it’s trying to save you (and itself) money. Viacom wants to keep things the way they have always been: bad, wasteful, and expensive.