Viacom and DirecTV end spat with new deal

More than a week after 26 Viacom networks went dark on DirecTV(s dtv), the programmer and the pay TV operator announced early Friday morning that they have a new deal. No financial details but between analyst estimates and other information, I think it’s safe to say the agreement, which also includes streaming rights to computers and devices for DirecTV Everywhere, is worth more than $600 million a year.
Based on comments from the two, DirecTV was paying about $500 million a year on Viacom when the seven-year-old contract ended at midnight July 12; DirecTV said it is spending $10 billion on programming and Viacom said it was delivering 20 percent of the viewed programming but only getting 5 percent of the money.
Nomura analyst Michael Nathanson estimated in a client note that Viacom is shifting from $2.25 per subscriber to more than $2.80. My understanding is there is a so-called “step-up” increase in the first year with points along the way when the fee would escalate. A source familiar with the situation said the first-year percentage increase is double the offer before Viacom said it would pull the channels and DirecTV dropped them.
Was the blackout worth it? It was for Viacom, which took a PR hit but is getting a significant double-digit increase in fees and is locked in with one of its largest carriers for a long-term deal that I’m told is comparable in length to the one that just ended.
All the channels in the previous agreement are to be restored immediately, ending the 10-day blackout that affected roughly 20 million DirecTV subscribers. Many of the channels are on basic packages and included with every subscription.
The deal comes less than a day after Viacom rejected DirecTV’s claims to customers than a deal was imminent. But that was also the day that DirecTV’s offer changed to one that was more attractive to Viacom.
Here’s the press release from Viacom(s VIA)(s VIAB):

Viacom today announced that the company has reached a long-term agreement to renew carriage with DIRECTV.
All 26 Viacom networks, including Nickelodeon, Comedy Central, MTV, BET, CMT, Logo, Spike, TV Land, MTV2, VH1, VH1 Classic, Palladia, Nick Jr., Nicktoons, TeenNick, Tr3s and Centric, will return to DIRECTV’s channel lineup immediately. As part of the overall carriage agreement, DIRECTV has an option to add the EPIX service to its entertainment offerings.
Viacom is extremely pleased to bring its programming back to DIRECTV subscribers, and thanks everyone affected by the disruption for their patience and understanding during this challenging period.

And this is how DirecTV told its subscribers:

But DirecTV went a little further in its press release, with Derek Chang, EVP of Content Strategy and Development, describing the blackout as “bullying”:

“It’s unfortunate that Viacom took the channels away from customers to try to gain leverage, but in the end, it’s clear our customers recognized that tactic for what it was.”

And trying a call to arms for all TV providers to resist blackouts as a bargaining tool:

“The attention surrounding this unnecessary and ill-advised blackout by Viacom has accomplished one key thing: it serves notice to all media companies that bullying TV providers and their customers with blackouts won’t get them a better deal. It’s high time programmers ended these anti-consumer blackouts once and for all and prove our industry is about enabling people to connect to their favorite programs rather than denying them access.”

DirecTV’s statement also played up the vocal support it had from some competitirs, including the American Cable Association, Cox Communications, Time Warner Cable, and Mediacom.
Bringing a retort from Viacom:

Despite the unnecessary drama, we’re very pleased with our agreement and we’re extremely thankful to have reconnected with our DIRECTV viewers.

Make no mistake, blackouts are a high-pressure tactic. So is threatening to drop channels or actually dropping them if a deal doesn’t match the pay TV provider’s goals.
We said it on day and it’s worth repeating: the subscribers are the ones hurt the most. Unfortunately, all too often negotiations that should be manageable without drama on either side wind up escalating in ways that hurt everyone.