Viacom and DirecTV dispute highlights challenges for an Apple HDTV

Since late Tuesday evening, DirecTV's 20 million or so subscribers have been unable to watch programming on any Viacom owned stations, including MTV, Comedy Central, Nickelodeon, and BET. Here's what the dispute tells us about the prospects for an Apple HDTV

Since late Tuesday evening, DirecTV's 20 million or so subscribers have been unable to watch  programming on any Viacom owned stations, including MTV, Comedy Central, Nickelodeon, and BET. As you might have heard, Viacom and DirecTV remain embroiled in a contract dispute with neither side presumably being willing to budge.

The short of it is that Viacom wants more money for its lineup of stations while DirecTV claims that Viacom is demanding too much.

In a statement issued yesterday, DirecTV executive vice president Derek Chang explained:

We have been very willing to get a deal done, but Viacom is pushing DirecTV customers to pay more than a 30 percent increase, which equates to an extra $1 billion, despite the fact that the ratings for many of their main networks have plummeted and much of Viacom’s programming can be seen for free online.

Meanwhile, Viacom issued a statement of its own:

We proposed a fair deal that amounted to an increase of only a couple pennies per day, per subscriber, and we remained willing to negotiate that deal right up to this evening’s deadline. However, DirecTV refused to engage in meaningful conversation. We are hopeful that DirecTV will work with us toward a resolution and stop denying its subscribers access to the networks they watch most.

Viacom also added that their original contract with DirecTV is many years old and that the rate it's seeking to charge DirecTV is in line with what other cable providers pay.

Now I happen to be an unlucky DirecTV subscriber (though with Breaking Bad starting this Sunday, I'm sure glad I still have AMC) and when I flip over to a station like MTV I'm now greeted with a "special message" from DirecTV CEO Mark White talking about how Viacom wants subscribers to pay more money for channels that they may not even watch.

And driving that point home, DirecTV even set up a website where they explain the dispute, urge consumers not to switch cable providers, and essentially promise that the dispute will soon be resolved.

Notably, visitors to the site are greeted with a large, hard to ignore message.

Viacom wants you to pay over 30% more to get back the channels that you were already receiving.That’s over $1B on top of what you were already paying for not only MTV and Nickelodeon, but also all of their other channels that you might never watch. You should be able to decide which Viacom channels you want and which you don’t. (emphasis added).

And so therein lies the game - channel bundles.

Believe it or not, but the dispute between DirecTV and Viacom underscores the challenges Apple faces in successfully implementing a'la carte programming - which if you believe the rumor mill, is something they're exploring and trying to negotiate.

As it stands now, content providers often offer a selection of channels to cable providers as part of all-inclusive bundle wherein the successful (i.e more expensive) channels help subsidize the existence of the less popular channels. Viacom, for example, bundles many of its music stations like MTV and VH1 with stations like Nickelodeon and the LGBT themed Logo channel. It's an all or nothing deal.

Naturally, this dynamic has its pluses and minuses. The downside is that consumers end up paying a lot of money for channels they don't ever watch. The upside, though, is that with the popular channels subsidizing the less popular ones, we get access to all the niche channels that make cable worth having.

Content providers like their bundles as it's proven to be a rather successful business model. For instance, bundles are why $5 of your monthly cable bill goes to ESPN, regardless of whether or not you ever watch it. Put simply, content providers like the status quo and have no incentive to change the current business model.

DirecTV points out that Viacom wants more money for stations that most people may not watch, but again, that's how the game has long been played. Viacom isn't about to sacrifice its bottom line to appease DirecTV.

What's more, and in an effort to play hardball, Viacom has also begun pulling some of its more popular programs from the web. So DirecTV subscribers attempting to hop online to get their fix of "The Colbert Report", for example, are now completely out of luck.

So what in the world does this have to do with Apple and its rumored HDTV?

Well, Viacom's tactics here underscore the inherent challenges Apple faces in their efforts to secure a'la carte programming. Content providers aren't starving or looking for a way to recoup profits like the music labels were back in the early 2000's.

The New York Post not too long ago noted that cable executives were opting “to keep Apple at a safe distance from the lucrative $150 billion pay-TV business.”

In short, a'la carte programming for an Apple HDTV is an extreme long-shot, to put it mildly.

Viacom's hardline stance with DirecTV, going so far as to remove extremely popular shows from the Internet, again highlights just how seriously content providers like Viacom are about protecting their beloved cable bundles.

So as the the Viacom/DirecTV dispute continues, we'll have to wait and see who decides to blink first. In the meantime, the only losers are DirecTV subscribers.

Lastly, and for those who reflexively are pining for a'la carte programming, keep in mind that such a scenario might actually result in higher monthly cable bills.

In an article I wrote on the mater a few months back I explained:

Assume that ESPN, which commands about $4 per subscriber, went to an a’la carte model and that 50% of cable viewers decide to sign up for the channel. In this scenario, ESPN would have to raise their monthly fee to subscribers to $8/month to account for that missing revenue.

Now roll this scenario out across a multitude of channels. Stations like SciFi, E!, CNN, FX, Discovery, TLC would all have to raise their prices. If you happen to only watch a few stations then perhaps you would save money overall, but even 8-9 select channels might prove more expensive than your current all-inclusive cable plan.

Similarly, a monthly subscription plan for an Apple HDTV isn't likely to save consumers money in the long run unless Apple is able to extract favorable content deals, something which it's been reportedly having a lot of trouble accomplishing.

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