Online Distribution Could Gain Stronger Significance in Deals
Viacom restored online access to programming that was lost when channels were dropped from DirecTV’s lineup amid a carriage fee dispute between the companies. For the season premieres of The Daily Show and The Colbert Report, the cable programmer made full episodes available on the shows’ websites, it said in a blog post (http://xrl.us/bng7zy). Other networks’ shows also have been restored. Some cable and media professionals said that distributors like DirecTV likely do not want to pay a hefty sum for channels if their content will be available online (CD July 13 2012). The officials said this availability has come to play a significant role in pay-TV network carriage negotiations.
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By reinstating full online access to programming, Viacom did the right thing, said John Bergmayer, a senior staff attorney at Public Knowledge. “The biggest fans of shows tend to seek them out online, and it makes no sense for networks to punish them,” he said. “Access to online programming is in the interests of viewers and networks alike.” DirecTV is “vigorously working to reach a fair agreement with Viacom to return the channels you want most,” DirecTV told customers (http://xrl.us/bng74t).
Programmers and distributors have factored the availability of online content into their negotiations and their overall business initiatives, said analyst Bruce Leichtman of Leichtman Research Group. “The content owners have been very careful about what they put online and when, in order to not devalue their product.” Generally, “the cable and satellite programmers have been much more conservative in putting their programming online in order to keep the value up for their affiliate relationships,” he said.
Heavy online availability goes against the distributor’s need to be exclusive, said John Hane, a broadcast TV lawyer at Pillsbury. Distributors pay more for exclusivity, he said. “It goes to how much value you ascribe to a particular channel. ... If an awful lot is available online for free, then you as a distributor will argue that you shouldn’t pay as much for it.” The issue often surfaces in negotiations, though isn’t a defining factor in whether a pact is reached, Hane said. “While there is a grain of truth in it, it turns out to be more rhetoric in negotiations than real.” Both sides want and need to come to a deal, but distributors will continue to pressure programmers, Hane said: To the extent content is made available online by the programmer, “distributors are going to press for more granularity themselves, and the ability to choose the channels they want rather than the entire outfit of programming."
Many agreements include terms that prevent or heavily restrict programmers from offering their content online or with connected devices, said President Charles Herring of WealthTV, a lifestyle and entertainment network. Many multichannel video programming distributors have “prohibitive alternative distribution mode” clauses in their affiliation agreements with programmers, he said. “These agreements can restrict programmers from offering online services whether the content is offered on a free basis or a paid basis.” WealthTV lost its FCC program carriage complaint against several large cable operators.
Some media professionals said the online content hasn’t become a substitute for a pay-TV service. While some MVPDs offer authenticated services online, “these services are designed to be [complementary] to the MVPD customer, not a replacement,” said Herring. “Online content can be a meaningful substitute for the authenticated existing MVPD customer, yet this customer is already paying for the linear MVPD services.” For most consumers, “it’s difficult to watch the programming they like when it initially becomes available, without being a MVPD customer,” he added. The live element is lost with online streaming, Leichtman said. But there’s validity to an argument that says “should I be paying ‘X’ for your product if people can get it online?” he said. For this reason, “cable programmers have held back on giving their content online for free,” he added. “Nobody really found a way to monetize content online other than through the traditional MVPD system,” Hane said. “It’s presented in ways that make it an incomplete substitution."
The disputes around content and pay-TV packages underscore the need for more consumer choice by way of unbundling packages of channels, said Robert Gessner, Massillon Cable president. “Don’t think for a minute that distributors want to raise rates or clutter the lineup with unwatched networks,” he said in a written statement. It’s done “because the content providers demand it,” he said. “Despite the content providers’ overwhelming power and control, the ultimate end is more consumer choice, not a continuation of the ‘everyone-must-take-all’ model.”