DirecTV customers couldn’t get their Weather Channel forecast this morning as a dispute over fees escalated into a blackout of the network that has struggled to make weather-tracking a round-the-clock draw for viewers.
The channel owned by Comcast Corp. (CMCSA:US)’s NBCUniversal and private-equity firms Blackstone Group LP (BX:US) and Bain Capital Partners LLC was unavailable starting at 12:01 a.m. New York time. DirecTV is seeking a “substantial” reduction in monthly carriage fees, said David Kenny, chairman and chief executive officer of Weather Co., the channel’s parent.
Cable networks with smaller audiences are bearing the brunt of pay-TV carriers’ efforts to limit cost increases, as the most-watched cable and broadcast networks demand more. The Weather Channel is even more vulnerable because viewers can get up-to-date information on smartphones or the Web, and watch local TV or a 24-hour cable-news channel when there is a storm in their area, said Christopher King, an analyst with Stifel Nicolaus & Co.
“Carriage fees are an ongoing area of contention,” King, who recommends buying DirecTV shares, wrote in an e-mail. “It’s difficult for me to say whether we need a channel dedicated to weather.”
The standoff is the latest in a series of disputes over subscription fees. Last year, CBS Corp. was blacked out for one month for Time Warner Cable Inc. subscribers in New York, Dallas and Los Angeles. Cablevision Systems Corp. pulled Tribune Co.’s stations off the air in 2012.
DirecTV, with 20 million subscribers, is the biggest U.S. satellite-TV carrier. It’s pushing for a reduction of more than 20 percent in the fees it pays the Weather Channel, which is asking for an increase of 1 cent a month per subscriber, Kenny said in an interview today.
The Weather Channel, based in Atlanta, averaged 13 cents a month per subscriber in 2013 and in 2012, according to estimates from researcher SNL Kagan. By comparison, USA Network, the most-watched U.S. cable channel with an average prime-time audience of 2.43 million viewers, received 71 cents a month for each subscriber last year.
By attempting to cut the network’s fees, DirecTV is trying to implement a new negotiating tactic in television -- paying for performance, said Craig Moffett, an analyst with MoffettNathanson LLC in New York.
“DirecTV is attempting to tie the rate that it pays to the ratings that the channel generates,” Moffett said. “The Weather Channel’s ratings are down about 20 percent from two years ago. DirecTV is proposing to pay them 20 percent less.”
DirecTV is in talks for “an agreement to return the network to our lineup at the right value for our customers,” Dan York, chief content officer at the El Segundo, California-based company, said in an e-mailed statement.
The Weather Channel, available in 100 million U.S. homes, averaged 214,000 daily viewers in 2013, down from 264,000 in 2011, according to data provided by Nielsen. The audience surged to 709,000 during Hurricane Sandy in 2012 and to 326,000 during this month’s polar vortex, which led to subfreezing temperatures across the U.S.
Kenny called the blackout a “dangerous gamble” by DirecTV, arguing that viewers rely on his network to be aware of threatening storms. The fare increase helps the network invest in better technology for weather coverage, he said.
“This is not a big increase, and we haven’t had anyone else balk,” Kenny said.
In addition to meteorological reports, the Weather Channel has featured movies like “The Perfect Storm” and reality shows like “Prospectors,” an original series about miners looking for gems.
While removing the Weather Channel is regrettable, customers won’t have to go without their local forecast, DirecTV (DTV:US)’s York said in a statement. DirecTV began carrying WeatherNation, a competitor, in the weeks before the contract’s expiration. AccuWeather Inc. announced plans yesterday to start its own 24-hour weather channel in the third quarter.
“Consumers understand there are now a variety of other ways to get weather coverage, free of reality show clutter,” York said. “The Weather Channel does not have an exclusive on weather coverage –- the weather belongs to everyone.”
NBCUniversal, which holds a 25 percent stake in the Weather Channel, is a passive investor and isn’t involved in the distribution talks, Kenny said.
DirecTV rose less than 1 percent to $71.02 at the close in New York. The shares have advanced 33 percent over the past year.
Loyal fans of the Weather Channel’s programming, including its experts and 220 meteorologists, will leave the satellite-TV provider, Kenny said today on Bloomberg Television.
The network is moving away from the programming viewers want, going beyond meteorological coverage into entertainment, DirecTV’s York said in the statement.
“Most consumers don’t want to watch a weather information channel with a forecast of a 40 percent chance of reality TV,” he said.
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