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Why DIRECTV Removed 26 Viacom Channels
(July 11, 2012)
-- There was a time when DIRECTV wouldn't dare to remove 26
channels from its lineup, particularly a group as popular as
Viacom's 26-channel suite which includes MTV, Comedy Central and
Nickelodeon. The satcaster would be terrified that a large
number of irate subscribers would flee to other providers, such
as Dish Network and telco upstarts, Verizon and AT&T.
But today's economic realities combined with an explosion of new services where viewers can watch almost any show online (including some for free) has changed everything.
Painfully aware of high unemployment in the U.S. and a growing financial mess in Europe, DIRECTV (and other TV providers) has made trimming programming expenses its top priority. The satcaster may have 20 million U.S. subscribers today -- and healthy profits -- but it knows that even rougher economic times could be just around the corner.
Failure to limit programming costs now could seriously damage the company's financial picture in the coming months and years if the economy does not improve.
The drive to limit programming costs is also fueled by the programmers' rising demands for increased compensation to carry their channels. Roughly three years ago, broadcasters and cable networks decided to go all in and demand that pay TV providers may more -- lots more. The tactic has been highly effective with network execs such as Leslie Moonves openly bragging that "retrans" (the industry jargon for carriage fees) has made their coffers flush with cash. TV providers, for the most part, have paid up, fearful that their customers would leave if they couldn't watch their favorite channels.
But the broadcasters and cable networks recently made a tactical error, one that led to today's Viacom/DIRECTV Impasse -- and will lead to more fee fights in the near future. They decided to sell their programming to Netflix, Hulu, Amazon, iTunes and just about every other online venue you can think of.
Consequently, if you can't watch Nickelodeon or Comedy Central on DIRECTV, no problem, just subscribe to Netflix or Hulu. The shows are there. (And at the network web sites, some shows are free.).
Knowing this -- and knowing that its subscribers know this -- DIRECTV and other pay TV providers have more leverage. They have less risk of losing subscribers upset over a lost channel because those subscribers can at least still watch those shows in some venue, albeit for a small monthly fee (Netflix, Hulu).
The networks' greed -- the quest to generate revenue from every possible source -- has come back to hurt them in their effort to wring more dollars from the pay TV providers.
If the networks don't begin to acknowledge this fact -- and lessen their compensation demands -- we will see more fee fights. And ones that last months, not just days and weeks.
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