DirecTV to Drop 26 Viacom Channels?

Contract negotiations between video service providers and programmers often go right to the brink of "channels going dark" before new carriage agreements are reached, and that might be the case for on-going discussions between DirecTV and Viacom.


Viacom’s distribution agreement with DirecTV is set to expire at midnight on Tuesday, July 10. Viacom says it has been negotiating for months but hasn't reached an agreement on a new contract. 


In part, that might be because Viacom claims DirecTV wants lower ratse than Viacom receives from any other distributor in the industry. 


So it remains possible that nearly 20 million DirecTV subscribers will be without 26 Viacom channels, including Nickelodeon, MTV, Comedy Central, BET, VH1, CMT, Spike TV, TV Land, if a new agreement is not reached. 


Most often, though, some last-minute accommodation is reached. Still, the escalating number of disputes between distributors and programmers illustrates growing financial tension within the video subscription business. 


At least some consumers are finding they don't value subscription video as much as they used to. In other cases, especially with a growing percentage of Millennials, the value isn't high enough to convince them to subscribe, even when those consumers can afford to do so.

But affordability is a growing problem. Bernstein Research Senior Analyst Craig Moffett has argued that "after the necessities of food, shelter, transportation and healthcare each month, the bottom 40 percent of U.S. households have already exhausted all of their disposable income."

"There is," he says. "nothing left for clothing, for debt service, for cable or for phone."


That will put increasing pressure on service providers to hold the line on retail pricing or even reduce it. That will require any number of changes. Service providers can create modified and cheaper tiers of service, can drop whole channels, pay programmers less or cut some marketing expenses. 


Ultimately, the need to limit channels, and therefore operating costs, will be become a necessary step, unless programmers decide to yield on per-subscriber fees. In order for some networks to do that, the networks themselves will have to stop paying program creators as much as they presently do, as well. 


Up to a point, programmers and distributors will not want to upset a business model that has worked very well. But if the business model starts to crack, historically unusual steps will have to be taken.