DirecTV seems to have the edge in my non-scientific checks with industry watchers who monitored the contract dispute that for 10 days prevented 20M satellite customers from seeing Viacom’s 17 channels. But there are champions for both sides — and nobody outside of the companies knows enough about the financial terms to make a solid case for his or her view. Here’s what I’m told: DirecTV’s first year payment to Viacom in the seven-year deal is a double-digit percentage step up from what it was paying before, but less than the 30% that DirecTV said Viacom initially wanted. After that, DirecTV’s outlay for Viacom’s channels will rise by mid-single digit percentages each year. The deal gives DirecTV the right to stream Viacom programming to its customers — both inside and outside of their homes — via the satellite provider’s TV Everywhere program. And it doesn’t have to carry premium movie channel Epix, but has the option to pick it up.
When the talks initially broke down, Viacom said that its channels accounted for about 5% of the nearly $10B that DirecTV spent on programming last year — about $500M. Some say that the new deal would bring that to 6%, or $600M, but that’s in dispute. Whatever the case, DirecTV’s outlays apparently will be high enough so Viacom won’t have to revise contracts that assure other pay TV providers that they’ll pay the lowest rates. But they may not be high enough to meaningfully compensate for the advertising Viacom is losing as a result of the steep ratings declines at channels including Nickelodeon and MTV. Meanwhile DirecTV tells customers in an email that their “patience during this unfortunate Viacom blackout has helped to serve notice to every media company that you and our other customers will not be bullied” — presumably into paying extravagant amounts for programming.
What do the experts on Wall Street say? Depends on whom you ask. Bernstein Research’s Todd Juenger is firmly in the DirecTV-won camp. “The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations,” he says. “For the first time in memory, it was the distributor that won the public relations war.” He says that the terms for Viacom were “way below the market’s and Viacom’s expectations.” Wells Fargo’s Marci Ryvicker also believes that DirecTV “may have won this battle….It is good for both companies that this is over, but we think leverage may have been with the distributor this time.”
Nomura Securities’ Michael Nathanson couldn’t disagree more. “This deal reinforces the power of Viacom’s networks and brands, especially in the face of weak short-term ratings,” he says. “It also helps set the template for future deals and debunks the bearish thesis of dropping any networks or not having enough clout over distributors given recent concerns over Nickelodeon ratings.” Barclays Capital’s Anthony DiClemente also concluded that “the deal represents a favorable outcome for Viacom—including a more than 20% initial step up in fees—and is yet another example of the leverage that content owners maintain in these negotiations.”
Investors also seem divided. DirecTV shares fell 1.3% on Friday, while Viacom was -0.5%. But if you start at July 9, just before the dispute became public, then DirecTV is -1.9% while Viacom is -2.6%.