Viacom and DirecTV Situation: Who Is Right, and Who Is Wrong?
Earlier today, DirecTV customers were presented with the above image whenever attempting to access any channel owned by Viacom, a leading entertainment entity. The next step in this seemingly obvious sequence of events, is for customers to complain. The majority of complaints, understandably, come from DirecTV customers, who are angry about a situation in which they lose popular programming for reasons outside of their control.
The true reason behind this situation boils down to one primary focus: Money.
In one corner, DirecTV has been presented with an increase in their bill, an increase which would require the satellite television provider to potentially raise the bills of their more than 20 million subscribers. The increase would amount to over $1 Billion total for DirecTV, according to the terms of the proposed agreement by Viacom, a CBS corporation.
In the other corner, Viacom feels that their services are in popular demand, and is therefore requiring an increase they claim is “reasonable.” Viacom’s Facebook channel exclaimed today that the proposed terms would require DirecTV to pay “pennies more per subscriber, per day.”
But with 20 million subscribers, and 365 days in a year, the numbers add up really fast for DirecTV.
Viacom channels—including Nickelodeon, MTV, VH1, BET and Comedy Central, have all been taken off the air by DirecTV, who were under threat of huge legal issues if they were to air any content after midnight last night. There is no real way of knowing when the stations will come back at this time, because no news of an agreement is in site just yet.
Because of the loss of service, DirecTV customers are upset with their service, and many are leaving for other cable-network providers, like Dish Network, or cable companies like Comcast. Some hold DirecTV responsible for the mess, claiming they aren’t doing their part to provide the quality service their contracts specifies they’d receive. They feel a sense of entitlement due to paying their bills, and are disappointed that the networks they want to watch, are no longer available to them. Some people blame Viacom, for being a greedy media corporation who just wants to strip as much money out of people as possible as they struggle to keep up with the pace of the digital age. Viacom’s business model (and cable television in general) revolves around the oldest method of content distribution, and they’re plugging other companies to pay them more to stay afloat.
So the real question here, is who is really to blame for this issue? DirecTV, or Viacom?
To help answer this, we’ll need to answer a few questions about the situation that haven’t already been addressed above. We’ll start with how this affects consumers, and why the impact on you (the person on the couch watching too much bad television in America) are a primary focus in this debate.
How Does This Deal Effect Consumers?
DirecTV claims that the proposed terms from Viacom represents a 30% increase in price, and thus, a 30% increase in cost for DirecTV. When a business begins to pay more for inputs (the materials or content which the company takes in to create their product or service), the event usually is associated with an increase in the price of their outputs (the product or service). This is if nothing else about the business changes, which in this case, nothing else has. With DirecTV paying more money for the same channels, especially something as high as 30%, they have few options for allowing a continuance in normal operations without losing profit.
Thus, without lowering costs on their end in other ways, they are forced to raise prices for their consumers. If DirecTV takes the deal presented by Viacom, which seems to be proposed for no other reason besides the desire for higher revenue for Viacom, then DirecTV would have to increase the prices for the consumer (you). While pennies per day per subscriber doesn’t seem like very much for some, DirecTV will be taking a huge hit from such an agreement, and they are refusing to do it.
Part of the reason for their refusal, is the impact on their customers. DirecTV doesn’t want to raise prices for customers. There are two sides to this reasoning. In one hand, DirecTV customers will have lower satisfaction, and a lower sense of value from their service. Many may become upset and leave the provider for a competitor as a result of feeling “cheated by a greedy company.” On the other hand, raising the prices also pushes them further away from gaining a competitive advantage in relation to their competitors, which is of course a great way to assure that you won’t be in business much longer. Consumers are caring more and more about price today, and those with the higher prices better be able to deliver a higher quality experience in return if they wish to remain successful.
The Value of Viacom Programming
Viacom has popular television programming, there is no denying that. However, despite their eagerness to pull more money out of DirecTV for their content, Viacom has seen declining ratings for a large portion of their most popular programs, such as Nickelodeon’s “SpongeBob SquarePants” and MTV’s “Jersey Shore.”
DirecTV may see a value in the popularity of Viacom programming, but they are also aware of a few things Viacom fails to consider when putting together their terms. Namely, the freely distributed content Viacom channels offer on their websites, which DirecTV sees no revenue from (because it has nothing to do with their service). If the web didn’t exist, Viacom would need DirecTV more than ever, because of the huge number of customers the satellite provider has. However, because of the internet, the value of their programming (to DirecTV) has decreased, and the value of having a partnership with DirecTV (for Viacom) has also declined.
The issue hurting Viacom in this venture to gain more for nothing, is that it lacks the bargaining clout its peers enjoy. For example, Viacom doesn’t have a broadcast network and stations, which are assets that strengthen Fox, Disney, and NBCUniversal‘s hands when it comes time to begin re-transmission consent negotiations. Viacom also lacks a popular sports network, which is typically considered a must-have service. Many are hoping DirecTV holds out and stands firm in their decision, which would show strength in a resolve to stop these companies from continuing to drive up the costs of programming. After all, it’s the studios that are judging how much you’re ultimately paying for service. It’s not entirely the cable or satellite companies. The more they have to pay to show the content, the more you have to pay to see it.
When two entities that used to need each other’s business realize that the value of their partnership has declined, tensions can arise when one side demands huge increases in payment (like, oh say… $1 Billion more for nothing additional in return).
But to really understand how bad a situation like this could get for people, we need to look at everybody that could be effected by this blackout. Let’s take a look into an extreme example that isn’t entirely impossible (just improbable).