DirecTV Customers Lose Viacom Channels as Fee Talks Fail

Subscribers Penalized Again as Companies Fight

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Viacom's 26 channels, including MTV , Nickelodeon and Comedy Central, went dark for almost 20 million DirecTV subscribers just before midnight as the companies failed to reach a new programming fee agreement.

Nickelodeon's SpongeBob Squarepants
Nickelodeon's SpongeBob Squarepants

Viacom demanded the network be dropped and wouldn't respond to a new offer sent on July 9, according to DirecTV, the largest U.S. satellite TV service.

"We have been very willing to get a deal done, but Viacom is pushing DirecTV customers to pay more than a 30% increase," Derek Chang, DirecTV's exec VP of content, strategy and development, said in a statement sent late yesterday. "Viacom sent us a letter last night that outlined our obligations to remove the channels by midnight or face legal action."

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 customers who lost access to AMC Networks last month. Viacom said on its blog that its programs amount to 20 % of the audience at DirecTV. DirecTV cited falling ratings at Viacom's channels.

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

Robert Mercer, a spokesman for DirecTV, said in a telephone interview yesterday that the 26 channels include nine high-definition versions of the 17 Viacom networks carried by the company.

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

DirecTV dropped Viacom's channels about 10 minutes before midnight with no warning, Viacom executive Mark Jafar said in a blog post. He said 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," Mr. 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."

In its own post, DirecTV said Viacom demanded a 30% increase in fees over the term of a new contract, amounting to more than $1 billion in additional costs. Viacom said its fees account for less than 5% of the satellite service's programming expenses, and that DirecTV "enjoyed way below market rates for Viacom's networks for a very long time."

-- Bloomberg News --

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