Tuesday, July 17, 2012

Viacom and DirecTV Eventually Will Settle; Will Consumers Win?

The contract dispute between DirecTV and Viacom that has at least temporarily yanked Viacom content from DirecTV customers will be solved, eventually. What isn't so clear is whether customers will win. Viacom wants to be paid more; DirecTV wants to pay less. Any eventual settlement will result in DirecTV paying more than at present, though not as much as Viacom wants.

But prices will rise. And that means consumer retail prices will rise, as well. And that is the strategic problem TV distributors have been able to resolve. Programmers understandably want to be paid more. But those desires are meeting a growing wall of opposition from consumers, some of whom just don't want the product at all, and others who want only some of the programming.

To be sure, TV distributors are trying to change the "value" part of the value-price equation by adding additional viewing options on PCs, tablets and smart phones. But "price," in an absolute sense, is becoming a bigger problem every year.

One potential solution is for distributors to pay lower fees, one way or the other, either by offering fewer channels, or paying networks less. The former is more likely than the latter, though.

That is why the preferred network practice of requiring distributors to take a "bundle" of channels, rather than allowing distributors to buy single channels, is a key issue. As consumers indicate they want a la carte options, so do video distributors want a la carte.

No matter how the contracts eventually are structured, consumers will "lose," to the extent that prices will climb, as DirecTV is unlikely to want to do without the Viacom networks forever, and will wind up paying more to Viacom for the right to carry the channels.

It always is possible that this particular set of negotiations is the one that will break the recent industry practices by starting to unravel the way networks get carriage on the distribution networks. Someday it will happen. Whether it happens here, or not, is the issue.

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