Viacom, AT&T Prepare for Battle

Programmer warns of looming blackout, while AT&T digs in its heels
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In what may be the first true test of its commitment to keeping down programming costs by jettisoning what it considers to be non-essential networks, AT&T has until Friday to decide whether a system-wide blackout of up to 23 Viacom networks is worth the hassle.

Viacom already is turning up the rhetoric, informing viewers that they could lose access to MTV, Nickelodeon and Comedy Central, painting AT&T as a greedy corporate behemoth only interested in the bottom line, not its consumers. According to Viacom, it has presented a plan that would actually help AT&T lower its programming costs -- offering to charge below the current rate initially and then escalating after.

“Unfortunately, AT&T is abusing its new market position by favoring its own content -- which significantly underperforms Viacom’s - to stifle competition,” Viacom said in a press release.

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Viacom also has set up a website -- KeepViacom.com -- to inform viewers of its position and what it says is AT&T’s refusal to come to the negotiating table.

Viacom pointed to AT&T’s recent purchase of Time Warner, which brought it content assets like TBS, TNT, Cartoon Network and others. That in addition to being the largest pay TV distributor in the country with about 24 million subscribers to its DirecTV, Uverse, DirecTV Now and AT&T Watch services.

Related: Chang: Viacom Deal Sends Signal 

In a statement, AT&T said it was disappointed that Viacom decided to negotiate its deal in public, adding that it was on the side of customer choice and hoped to avoid a disruption of service. But it also pointed out that the channels aren’t as popular as they once were.

“We hope to avoid any interruption to the channels some of our customers care about,” AT&T said in its statement. “The facts speak for themselves: several of Viacom’s channels are no longer popular. Viacom’s channels in total have lost about 40% of their audience in the past six years. Viacom is a serial bad actor in these business negotiations and has repeatedly used these tactics with other distributors.

“Our goal is always to deliver the content our customers want at a value that also makes sense to them,” AT&T continued. “We’ve always fought to get the best deal for our customers, delivering the content they want at a great value. We’ll continue to fight for that here.”

AT&T chairman and CEO Randall Stephenson has said in the past that the company would be “assertive” in its programming negotiations. 

Randall Stephenson, AT&T

Randall Stephenson

“We’ve got to get the content cost growth in line with what the customer is willing to pay,” Stephenson said during AT&T’s Q4 earnings call in January. “And the customer is willing to pay virtually no additional money right now. So the content costs have to reflect that. We will be very assertive as we go through the course of this year to control the spend on content costs.”

Viacom last reached a deal with AT&T’s Uverse in 2015, which at the time AT&T said it standing as the largest pay TV provider in the world afforded its IPTV and satellite platforms the “best deal in the industry for Viacom’s leading portfolio of television brands.” 

Prior to that, DirecTV had last inked a carriage deal with Viacom in 2012, when it was an independent company. At that time, the programmer was thought to be vulnerable as its ratings had begun what later turned out to be a multi-year slide as viewers turned their attention from linear TV to SVOD platforms like Netflix. Still, Viacom managed to secure what it characterized at the time were healthy increases, especially after a nine-day blackout.

Whether Viacom will test the waters with another blackout this time will depend on how vulnerable they believe the other side is. Viacom, like other programmers, has struggled with falling ratings and shifting viewership habits but has shown improvement. Earlier this year it agreed to buy free streaming service Pluto TV as the potential backbone of it own direct-to-consumer offering and has struck deals with other streaming video and traditional distributors.

At credit ratings agency Fitch Ratings Group,  director Patrice Cucinello warned that the negotiations could be contentious. She added that while Viacom's recent turnaround efforts have strengthened the company -- it has seen improved ratings at MTV, Comedy Central and BET -- there is still softness at its Nickelodeon and Paramount networks.

"We remained concerned by the trajectory and brand relevancy in light of continued media fragmentation," Cucinello said in a statement. "Viacom’s ability to successfully renegotiate its carriage agreement is critical to the health of its affiliate revenues and cable networks business."

AT&T isn't exactly on totally solid ground either. It recently weathered a big drop in DirecTV Now subscribers in Q4 after it eliminated promotional pricing. Its plan to raise prices as it shrinks choices -- it recently restructured the DirecTV Now to two packages for new customers priced at $50 and $70 per month without AMC, Viacom and Discovery channels -- could increase that subscriber drain.

At its DirecTV satellite TV unit, subscriber losses have been heavy -- more than 1 million last year alone -- with a much more robust video package -- it has an industry-leading ARPU of $115 per month. The possibility that it may lose the 23 Viacom channels permanently could pose some additional risk.

In a blog posting Wednesday, BTIG media analyst Rich Greenfield wrote that dropping the networks isn’t good for either party. Losing access to Comedy Central, Nickelodeon and MTV will likely save AT&T some programming money, but result in heavier subscriber losses. And Viacom probably would prefer not to see what it is like to lose 24 million potential viewers overnight.

“We suspect a deal will be reached relatively quickly even if a drop occurs, and would not be surprised to see the two sides reach an agreement in principle before this weekend to avoid a drop and then work out the details in the weeks ahead,” Greenfield wrote.

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