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Call it an upset? How DirecTV held its ground vs. Viacom
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Call it an upset? How DirecTV held its ground vs. Viacom - 22-July-2012, 00:00

This mornings end to the 10-day standoff between DirecTV and Viacom isnt just notable for putting some of the most widely viewed TV channels back on one of the biggest pay TV services.

It also marks the first time in recent memory that a major pay TV licensing dispute ended on the distributors terms.

Also read: Viacom and DirecTV end spat with new deal

According to several analyst reports, the core of the agreement calls for DirecTV to pay Viacom around $2.80 per each of its nearly 20 million subscribers to carry the programmers channels (up from somewhere between $2.08-$2.25, depending on the estimate).

According to Sanford Bernstein Research senior analysts Todd Juenger and Craig Moffett, who predicted this standoff in June, thats right on target with DirecTVs initial offer, and way below the nearly $3.68 cents per subscriber Viacom had been seeking.

The Bernstein analysts also note that DirecTV wasnt forced to carry the lightly viewed premium channel Epix. And it also received a wide swath of TV Everywhere licensing wherewithal, enabling it to offer Viacom channels to its sub scribers on their digital devices.

Also read: DirecTV/Viacom battle will come down to digital rights

As we reported this morning, Viacom is now receiving an average of just over $600 million annually over seven years from DirecTV, a 20 percent yearly bump over the previous contract. Viacom had demanded a 30 percent increase.

The Viacom/DirecTV dispute may be remembered as a critical turning point in programmer/distributor negotiations, Juenger and Moffett wrote in a Friday morning reporter to media company investors. For the first time in memory, it was the distributor that won the public relations war.

(It should be noted that several analyst consider this a win for Viacom, too, given that the company did achieve fee increases in the face of ratings declines.)

So how did DirecTV win? The analysts believe big recent ratings declines on Viacom channels like Nickelodeon were a factor; so was the ubiquity of Viacom programming on over-the-top channels like Netflix.

Another possible factor: viewing is lighter in the summer months, and Viacoms in-demand shows, like MTV reality series The Jersey Shore, are not in season.

In fact, we believe DirecTV chose this specific battle for those reasons, the Bernstein report states. Traditionally, customers blame the company to whom they send the monthly check. Not this time. Judging by the blogs and consumer press, blame was shared much more evenly this time.

It certainly has to be considered an upset, given the recent propensity of such impasses to go in favor of the programmer.

A document released Friday by the Federal Communications Commission, the groups 14th Video Competition Report, illustrates what so-called multichannel video program distributors like DirecTV are up against.

Put simply, the infusion of so much consumer choice in the pay TV market means cable, satellite and telco TV companies cant afford the competitive disadvantage of losing a major set of channels.

The rise of satellite services like DirecTV and Dish, as well as telco-based servies AT&T U-Verse and Verizon FiOS, has transformed a pay TV market that used to feature many regions serviced by only one cable provider.

In fee disputes with programming suppliers, cable companies used to have a lot more leverage, given their subscribers lack of options. But no more.

In 2006, the FCC found that only 6 million homes representing about 4.7 percent of the pay TV market had access to at least four pay TV services. By 2010, that number had ballooned to 42.9 million representing 32.8 percent of the market.

Meanwhile, there doesnt appear to be any brotherhood among pay TV operators, with Comcast among competitors looking to exploit DirecTVs Viacom impasse in ads and poach is subscribers

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