That’s the way Derek Chang, DirecTV‘s EVP Content, Strategy and Development, characterizes the state of play after last night when his 20M customers lost Viacom’s 17 channels including Nickelodeon, MTV, and Comedy Central. Negotiators spoke this morning, and “we’re making slow progress,” he tells me. The exec says his company hasn’t decided whether customers might receive a discount or rebate for the loss of so many popular services if the contract dispute drags on. “We’re going to do what we can to keep them happy. How we deal with that specifically will depend on what happens here.”
Price remains the core issue. Chang says that Viacom wants DirecTV’s payment for the channels to increase by more than 30% in the first year of a new contract followed by “annual escalators well in excess of normal inflators.” Contracts normally run from five to 10 years, but he wouldn’t say how long Viacom’s would last. Chang says that Viacom has “certainly rejected more than a double-digit increase,” but declined to offer additional details about the offers and counteroffers. Viacom has said that DirecTV’s offer is lower than any other distributor. But Chang says “they won’t even tell us what their lowest rates are and have a conversation on that.” He also was skeptical that Viacom could throw in enough digital rights or other sweeteners to get the price increase it wants. “Most economists are fearful of a deflationary environment,” he says. “Can you justify doing certain things because there’s added value? Yeah. But it’s going to be more on the margin than less.” Wall Street analysts estimate that DirecTV currently pays about $2.25 a month for each DirecTV household that receives Viacom’s channels.
Chang’s main message is that DirecTV is “not going to allow our customers to be discriminated against.” He adds that “you can’t absorb a 30% plus increases for your customers without significantly starting to increase their bills….Once that starts to happen, it’s a bad spiral.” That could result in DirecTV making a harder push for the right to offer channels individually instead of in packages. “If programmers are asking for rates that are significantly higher than they’ve been, and they believe that’s what those channels are worth, at some point you have to say, ‘Well then, let the customers pick the ones they want’.” Programmers reject that idea because “they want their cake and they want to eat it too. They want to try to push significant rate increases but then demand that you put the product in front of every customer. And that’s a tough proposition because not every customer watches every channel.” He also noted that ratings for channels including Nickelodeon are way down. “I don’t know how you reconcile 20 to 30% declines in ratings with 30% increases in rates, other than the fact that there’s some symmetry going both ways.”