Viacom’s Blackout of Online Programming Brings Internet into Carriage Negotiation Debate

Viacom’s action is unprecedented to John Bergmayer, the Public Knowledge senior staff attorney said. When Viacom offered those episodes online, it was likely an attempt to increase the company’s audience and build its brand, he said. “I didn’t see one of those reasons as a service for pay-TV subscribers, because if that were the case, why didn’t they come up with a TV Everywhere kind of service” where pay-TV subscribers only can watch a programmer’s content online, he said. The action is among the first of its kind because Viacom can’t target only DirecTV subscribers, since it isn’t an ISP, he said. Viacom’s tactic should be off the table, he said: If Viacom offered programming under the TV Everywhere system, “you might understand blocking DirecTV viewers a little bit more.” Because there’s no way to single out DirecTV customers, “they decided we'll block everyone,” he added. In a 2010 blackout of terrestrial-TV stations, News Corp.’s Fox briefly wouldn’t let any subscribers with a Cablevision Internet Protocol address its programs online during a retransmission consent dispute (CD Oct 19/10 p5).

The use of the Internet is an interesting variation in the standard distributor and programmer fight tactics, said Garvey Schubert lawyer Bruce Beckner, who has represented cable operators on retrans deals. “The battlefield is getting geographically larger than in the past, where it used to be cable providers versus DBS companies,” with the programmer trying to make the viewers the ping pong ball, he said. Now the Internet is brought into the arena, he said. The way the online content is valued by the companies comes into play, said Craig Moffett, a Bernstein Research analyst. The content is available online for free and DirecTV doesn’t want to pay a very high fee for it, he said. “Viacom said the availability online in no way serves as a substitute and doesn’t cheapen the value proposition … If that’s true, why take it off the Internet?"

Cox Communications agreed that programming costs are central to these conflicts. It’s a reflection of an unbalanced multichannel video business model, said Bob Wilson, content acquisition senior vice president. This model results in “continued significant increases in the cost of programming that are the main driver of rising cable and satellite TV service bills, and wide disparities between what large and small distributors pay for programming, resulting in similar disparities in what respective customers pay for service,” he said in a written statement.

A cable industry official attributes the developments in the dispute to the demands of programmers. The specifics of each negotiation can vary, “but it is the greed of programmers driving this to a crisis and creating one crisis after another,” he said. “Viacom is trying to get as much money out of DirecTV as possible,” but DirecTV already pays a lot for sports “and doesn’t want to pay out the nose for Viacom,” he added. “You're going to see more and more of this because the pressure on operators from sports programmers is rebounding and that pressure is being felt by the Viacoms of the world.” The Web video cutoff could hurt Viacom, Becker said. Customers “want to watch a show at their convenience, and the Internet serves as the ultimate medium of distribution that meets all those needs,” he said. Viacom sees the value in making content available for free on the Web, but by blocking episodes in a dispute with DirecTV, “the question is will it hurt them with others [non-DirecTV subscribers] who are trying to access the content,” he said. However, allowing the channels to go dark might hurt DirecTV, he added: “I don’t know how smart it is for DirecTV to tell people to go to the Web to see the program that we're not carrying."

It’s a very dangerous game for Viacom, said Moffett. Customers are inclined to blame the distributor for blackouts “because at the end of the day, it’s DirecTV they send their check to every month,” he said. “Viacom risks ceding that moral high ground to DirecTV and it makes it easier for the consumer to blame Viacom for the DirecTV blackout.” The use of online content as leverage is counterproductive to the future of online video, Bergmayer said. “One reason why they need to make content available for streaming with ads is to lessen people’s engagement in piracy.” Businesses must be more forward-thinking, he said: “If they don’t embrace the Internet, the future’s going to belong to the companies that do."

Viacom’s “consumer abuse is just another example of how everyday viewers are used as bargaining chips in ‘negotiation’ games where consumers ultimately lose,” said the American Television Alliance, a group that includes Dish, DirecTV and Public Knowledge. The blackout further emphasizes the point “that switching services is not the solution, because every distributor (large and small) faces the same problem,” it said. Viacom didn’t return a request for comment.