Bloomberg News

Viacom Is Said to Get Over $600 Million a Year From DirecTV

July 20, 2012

Viacom Inc Chairman Viacom, Sumner Redstone

Viacom, controlled by Sumner Redstone , fell 2 percent to $46.65 yesterday. The Class B stock has gained 2.7 percent this year. Photographer: Jonathan Alcorn/Bloomberg

Viacom Inc. (VIAB:US) will get more than $600 million a year from DirecTV (DTV:US) in programming fees under their new seven-year agreement, up at least 20 percent from the previous terms, a person with direct knowledge of the matter said.

Viacom, owner of the MTV, Comedy Central and Nickelodeon networks, announced a new agreement with DirecTV this morning, ending a 10-day blackout on the satellite-TV service. The person familiar with the payments asked not to be named because the information isn’t public. Before the accord was reached, DirecTV said that Viacom was demanding a 30 percent increase, amounting to more than $1 billion in additional costs over the contract.

“They’re both winners here,” said Amy Yong, an analyst at Macquarie Capital USA Inc. in New York. “DirecTV got a deal that was less that Viacom wanted, so on the margin, that’s a win for DirecTV. But it’s also a win for Viacom because they get more money.”

The deal restores “Jersey Shore,” “Dora the Explorer” and other shows to DirecTV’s 20 million U.S. viewers, with all of Viacom’s 17 standard-definition and nine high-definition networks returning to DirecTV. The agreement doesn’t require DirecTV to carry the movie channel Epix -- a source of contention during negotiations. DirecTV had said Viacom was insisting the satellite provider pay more than $500 million for Epix, which Viacom denied.

Streaming Rights

DirecTV also secured out-of-home live-streaming rights for all 17 of Viacom’s channels as part of the deal, said Derek Chang, DirecTV’s executive vice president of content strategy and development. That means customers will be able to watch live Viacom programming on their phones, tablets and computers.

It’s the first time Viacom has given a pay-TV provider live rights to their programming, Chang said. There’s no time frame yet for when the service will be available, he said.

Carl Folta, a spokesman for New York-based Viacom, declined to comment on the financial terms of the deal, as did Chang.

Shares of Viacom, controlled by Sumner Redstone, fell 0.5 percent to $46.41 at the close in New York. The Class B stock has gained 2.2 percent this year. DirecTV, up 13 percent this year, fell 1.3 percent to $48.33.

On a per-subscriber basis, Viacom will receive about $2.55 from DirecTV, estimates Brett Harriss, an analyst with Gabelli & Co. in Rye, New York. That’s about 13 percent higher than under the previous agreement, he said. Still, it’s less than the $2.75 Viacom receives on average per subscriber from all pay-TV companies, Harriss said.

“It’s nice, but it’s not anything near what Viacom wanted,” Harriss said.

‘Great Visibility’

Even so, Viacom managed to get a price increase and the deal removes a source of uncertainty for investors, said Alexia Quadrani, an analyst at JPMorgan Chase & Co. in New York.

“They’ve got most of their affiliate agreements locked up, so they’ve got great visibility on their revenue stream,” she said.

The parties had been negotiating for several months and extended their seven-year agreement past the original June 30 expiration while talks continued. Viacom’s channels went dark for DirecTV subscribers just before midnight on July 10. The satellite provider cited shrinking Viacom ratings during the dispute. Viacom has said its programs amount to 20 percent of DirecTV’s audience.

‘Decisive Push’

The two sides came together yesterday and made a “decisive push to hammer out a deal,” Viacom Chief Executive Officer Philippe Dauman said today in a memo to employees that was obtained by Bloomberg News.

“Even the strongest partnerships occasionally hit rough patches, and we are thankful that we could overcome the challenges of the past week and renew our partnership with DirecTV through an equitable agreement,” he said in the memo.

DirecTV sees the agreement as watershed moment for pay-TV companies. The resolution “reverses a trend of programmers squeezing pay-TV providers for more money by forcing a blackout,” Chang said. “Bullying TV providers and their customers with blackouts won’t get them a better deal.”

Pay-TV providers and media companies have increasingly sparred in recent years as rising content costs drive customer bills higher. In a continuing dispute, about 14 million Dish Network Corp. (DISH:US) customers lost access to AMC Networks Inc. (AMCX:US) channels since last month.

Content Costs

Time Warner Cable Inc. (TWC:US) released a statement earlier this week supporting DirecTV and Dish in fighting increases in programming costs. The expenses rise between 7 percent and 10 percent each year, according to data compiled by Bloomberg Industries. Viacom’s longest blackout prior to this dispute was with Dish in 2004, lasting just 46 hours, according to Rich Greenfield, an analyst at BTIG LLC in New York.

“It’s a marker for the industry,” said Todd Lowenstein, a Los Angeles-based fund manager at HighMark Capital Management Inc., whose HighMark Value Fund owns about 100,000 shares of DirecTV. “Other content providers and operators will stand up and take notice.”

DirecTV’s content agreements are “life-or-death” situations for the company because satellite-TV providers can’t fall back on revenue from broadband Internet service, unlike cable companies, Lowenstein said.

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

To contact the reporter on this story: Edmund Lee in New York at elee310@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net; Kelly Blessing in New York at kblessing@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net


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Companies Mentioned

  • VIAB
    (Viacom Inc)
    • $84.05 USD
    • 0.80
    • 0.95%
  • DTV
    (DIRECTV)
    • $75.64 USD
    • -0.41
    • -0.54%
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