We are still early in the era of pay everything to watch everywhere. As a consumer, you aren’t feeling it yet, but the trend is away from you paying all the freight by watching commercials – hence the maxim that television’s main job is selling eyeballs to advertisers, not programs to consumers – and to the producer/owners being paid a little less at every step, but being paid at EVERY step in some way.
Extrapolating from figures reported by the LA Times, DirecTV is now paying Viacom over $2 billion a year for the right to “rebroadcast” its networks. This deal is probably 3 years old. Viacom now wants another chunk. DirecTV says it’s a 30% bump equalling $1 billion. Viacom says that it’s pennies a day for each of DirecTV’s 20 million subscribers. Let’s be conservative and put the bump request at 25% and $750 million. That’s $37.50 per DirecTV subscriber per year or 10.3 pennies a day. This is on top of another, say, $112.50 a year that Viacom is already getting. So now we’re up to $150 a year per DirecTV subscriber or $12.50 a month or 42 pennies a day.
Viacom is a very valuable series of cable networks. My child lives on Nick JR shows. My wife watches those teen pregnancy shows. I watch The Daily Show 4 days a week (that’s all it’s on new).
On the other hand, I can get The Daily Show on Hulu Plus the next day. My so can watch the entire history of those Nick shows on Netflix and Amazon Prime, where I a, already dropping $15 a month between them. And my wife shouldn’t be watching that garbage anyway. (ha ha)
Viacom has been having a rough time with its ad sales for those cable nets. That is the nature of these changes. It’s horrifyingly like newspapers and the web, where the impact of print ads has diminished, but the more impactful web ads are still way underpriced by the ad buying community. The bar was set low and is not rising fast enough to make up for the print losses, in that example, or the on-air ad sales losses in this example. And that’s for the big guys. Imagine the pain of owning a local channel in this ad economy.
But how much is enough? How much is too much?
At some point, providers like DirecTV and Kabletown are going to have to really get ahead of each individual contract and set the ground for a clear future. Right now, it’s constant turmoil. There are only a half dozen or so major content dealers, so it’s not chaos, but the consumer is feeling the pain more and more, which eventually starts to eat away at an industry. (see: studio distributors and exhibition). AMC is off of Dish for now. Viacom off of DirecTV. Battles that go against the clock of major sporting events have become a regular feature of urban life. None of this – especially the consumer being aware of it – is good for business.
But DirecTV and the others face the same problem Netflix is in – and many are still in deep denial about – which is being forced by the economics to change business models.
I am paying someone, in this case, other than DirecTV, to bring Comedy Central into my home. And that provider is playing fewer commercials than DirecTV. Viacom is making its aging children’s programming available without commercials via other outlets that I am willing to pay for as well. And of course, Viacom’s getting paid by those outlets too. At some point, it just becomes math.
Viacom needs DirecTV every bit as much as DirecTV needs Viacom in this scenario. Viacom has already learned that outlets like and including DirecTV feel okay about refusing to add EPIX – Viacom/Paramount’s pay movie outlet, in spite of it meaning the loss of one of six studio’s recent movie outputs. But that’s not like taking away something viewers already have as “basic cable” and are sued to having readily available.
On the other hand, DirecTV is already kicking in approximately $2 billion a year to run those channels. That money and those eyeballs can’t be replaced anytime soon… even if as much as 25%of DirecTV subscribers moved to have access to the Viacom channels cabled/satellites in.
But if DirecTV pays Viacom more – not just paying, paying a lot more – than other equal cable groups and the more important ones will surely be back for more soon.
DirecTV’s total annual revenue is under $30 billion. If Viacom is already getting 6% -8%, can DirecTV afford to give them, say, 10% without Viacom’s cable nets offering any hope of growth?
Maybe they can. I don’t know the detailed math. But at some point, the answer will be, “no.”
And then what?