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DirecTV and Viacom reach deal

The contract agreement returns more than a dozen channels to the satellite broadcaster.

July 21, 2012|Joe Flint
  • “Dora the Explorer” was among the Viacom shows that disappeared from DirecTV homes during the battle.
“Dora the Explorer” was among the Viacom shows that disappeared… (Nickelodeon )

DirecTV subscribers no longer have to go searching for Nickelodeon's "Dora the Explorer" or Comedy Central's "The Daily Show."

Ending a nine-day fight over terms of a new contract, Viacom Inc. reached an agreement with satellite broadcaster DirecTV on Friday to return more than a dozen cable channels -- including MTV, Nickelodeon, Comedy Central and VH1 -- to the pay-television provider.

Customers are likely to notice a bump in their monthly bill from DirecTV as a result of the new deal, but executives there said Viacom is getting less than it wanted.

"There was an increase, but not nearly the increase they were seeking," DirecTV Executive Vice President Derek Chang said.

Neither DirecTV nor Viacom disclosed terms of their new seven-year contract.

Michael Nathanson, an analyst with Nomura Equity Research, said in a report that DirecTV was previously paying $2.25 a month per subscriber to carry Viacom's channels and that fee is now likely to be in the $2.80 range.

DirecTV Chief Executive Michael White had previously said the El Segundo company paid Viacom about $500 million annually for its cable channels, or about 5% of its programming costs.

Under the new arrangement, Viacom will account for more than $600 million of DirecTV's programming costs, according to a person with knowledge of the agreement who was not authorized to speak publicly.

"We ended up at a place where we feel comfortable," Chang said, declining to comment on the $600-million figure. He did say Viacom initially asked for an increase of more than 50%, which he called "ludicrous."

One reason for the increase, which Chang said is not insignificant in the first year of the deal, is that DirecTV was paying a rate far cheaper than other distributors under its former pact, signed in 2005.

Although programmers and distributors often bicker over new contracts, the Viacom-DirecTV battle was particularly public and nasty. Each company ran ads blasting the other, and their executives took potshots at one another as well.

In the past, it was rare for channels to be dropped while new contracts were being negotiated. However, that is becoming a more common occurrence lately.

DirecTV said it wanted to keep Viacom's channels on while the two tried to hammer out an agreement but its request was denied.

In the end that actually helped the satellite broadcaster.

"Once they fired the bazooka and took the channels off, what could they do?" Chang said. "We weren't flinching."

When Viacom's channels went off DirecTV, which is in about 20 million homes, ratings for its networks dropped more than 20% in some cases. The longer the networks were off DirecTV, the more Viacom had at stake.

However, DirecTV also had a lot to lose. The longer the satellite broadcaster went without Viacom's channels, the more likely it was that some subscribers would sign up with different distributors. A lengthy blackout would also make it harder for DirecTV to land new customers.

Viacom said earlier this week that it was walking away from negotiations with DirecTV, leaving subscribers and industry analysts expecting a long showdown.

But that break was apparently short-lived. On Thursday the two sides were trying to finalize an agreement that would enable both parties to save face. Viacom could say it got rate increases for its networks while DirecTV could counter that it held its ground against a massive jump in rights fees.

DirecTV did get one concession from Viacom. As part of the deal, DirecTV subscribers will now be able to access live feeds of Viacom's channels on tablets and mobile devices outside the home. This marks the first time that Viacom has agreed to allow such an arrangement with a distributor.

However, Viacom also is likely to continue to put a lot of its television shows on its own websites for free, which was a sore point for DirecTV.

"Despite the unnecessary drama, we're very pleased with our agreement and we're extremely thankful to have reconnected with our DirecTV viewers," Viacom said in a statement.

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joe.flint@latimes.com

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