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DirecTV, Viacom end in a draw in channel fee fight

July 21, 2012
By RYAN NAKASHIMA , The Associated Press

LOS ANGELES - Viacom and DirecTV fought a bruising fight over fees to a draw Friday and agreed to a long-term deal that ended a 10-day channel blackout.

Their new deal restored MTV, Comedy Central, Nickelodeon and other channels to 20 million DirecTV customers and ensured those channels will be available to subscribers on computers and mobile devices in the coming months.

Fans on Twitter expressed relief.

According to terms shared by both sides Friday, DirecTV Group Inc. will pay about 20 percent more to carry Viacom Inc. channels on satellite TV lineups. That works out to about $600 million in the first year of a seven-year deal. The companies agreed to annual single-digit percentage increases in subsequent years.

DirecTV was able to save itself about $500 million over the entire term by not taking the premium pay TV channel Epix. It said it also was able to send a message that it won't roll over every time a media company threatens to pull channels over fees.

"They realized we were not going to capitulate," said Derek Chang, DirecTV's executive vice president of content strategy.

Investors met the outcome with a ho-hum as the deal was largely in line with expectations.

Shares of both companies edged downward Friday in a declining market. Since the dispute resulted in a blackout the evening of July 10, Viacom shares are down 0.9 percent, closing Friday at $46.41, while DirecTV shares are down 0.7 percent, closing at $48.33. Over the same period, the Dow Jones industrial average rose 1.3 percent.

"I'm not going to engage on who was the winner and who was the loser," said Todd Juenger, an analyst with Bernstein Research. "What we've learned is the fair value of Viacom services, fully tested and vetted in a real marketplace negotiation."

By eking out a large fee increase, Viacom said DirecTV is now paying a rate that is more in line with that of other distributors.

DirecTV's Chang even acknowledged that it had been paying significantly less than competitors for Viacom channels because the deal that just expired had been locked in seven years ago.

Viacom had argued that its networks account for 20 percent of what DirecTV subscribers are watching but cost DirecTV just 5 percent of its overall programming expense. Under the new deal, the Viacom fees will come out to 6 percent.

"It was important to get fair value for our networks," Viacom spokesman Carl Folta said. "We are still one of the most efficient programmers in their bouquet."

By refusing to add Epix to its premium pay TV channel stable, DirecTV was able to save itself a big fixed cost over its entire subscriber base, as the flat fee would have been charged no matter how many subscribers choose to pay more for Epix, a movie channel that is half owned by Viacom.

Media companies typically try to sell rights to their channels as a package, so that fledgling channels are bundled with those already in high demand. Adding Epix to DirecTV would have been a big win for Viacom, as it's now carried by only a handful of distributors, including rival satellite TV provider Dish Network Corp. But that was seen as unlikely, partly because Epix movies are available to Netflix subscribers 90 days after debuting on TV and the channel might have been hard to sell to customers.

The damage from the blackout to both sides was real but not permanent.

DirecTV spokesman Darris Gringeri said the company lost subscribers because of the dispute, "but against our subscriber base, it was not a significant number."



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