Broadband Cable Association of Pennsylvania


July 11, 2012

On the very day that Viacom Inc. was threatening to pull its cable channels off DirecTV Inc. systems unless it wins higher programming fees, the founder of one of Viacom's channels warned of the dangers posed by ever-rising cable rates.

Robert Johnson, founder of the BET cable channel which Viacom acquired in 2001, told reporters in Sun Valley, Idaho that cable operators "cannot continue to...pass onto consumers 10% increases in programming costs." Online video alternatives will one day allow consumers to buy the programming they want rather than an entire cable package, he said. That will make it harder for cable operators to sell traditional packages of TV channels at higher prices, he said. "In the next two or three years...something is going to give," said Mr. Johnson, who left Viacom in 2006 and now is raising money to create a new channel that could be distributed through online video outlets. "At some point the consumer is going to say enough is enough." Viacom declined to comment on Mr. Johnson's remarks.

Mr. Johnson was in Sun Valley for Allen & Co.'s annual conference, attended by media moguls, investors and technology executives. Also scheduled to attend were Viacom Chief Executive Philippe Dauman and DirecTV CEO Mike White, whose companies were in negotiations Tuesday to try to avert a midnight blackout of Viacom's channels, which include BET, Nickelodeon, Comedy Central and MTV on DirecTV. DirecTV said Viacom is asking for a 30% increase in rates. Viacom said its agreement with DirecTV is seven years old and that the satellite provider has been paying below-market rates for Viacom's networks "for a very long time." DirecTV, which has 20 million subscribers, is the second biggest pay TV distributor after Comcast Corp.

The dispute highlights intensifying friction between content companies and pay-TV distributors over costs of programming. A couple of weeks ago Dish Network Corp. dropped all of AMC Networks Inc.'s channels-including AMC, with hit shows including "The Walking Dead"-citing the channels' rising costs. Like Mr. Johnson on Tuesday, Dish Chairman Charlie Ergen has publicly warned of the danger that rising cable fees will prompt consumers to disconnect their pay-TV subscriptions. "Cord cutting is starting to happen, regardless of what people say," Mr. Ergen said in a recent interview. "We are in this model where programming costs are going up 10% a year for customers, and when customers rebel against that they're going to go a different route."

While disputes about programming costs have flared for years, pay-TV companies are becoming more vocal about channel viewership relative to their costs. DirecTV's dispute with Viacom follows ratings drops at some of Viacom's best known channels, particularly Nickelodeon, whose audience has shrunk 26% so far this year compared with the same period last year, according to Nielsen. "Ratings have significantly declined at networks representing 71% of Viacom affiliate fees and 89% of ad revenue," said Sanford C. Bernstein analyst Todd Juenger in a research note. He also pointed out that Viacom content is available on multiple online video outlets, including Netflix, which may be contributing to the slide. While Nickelodeon remains one of the most-watched cable channels on the dial even after these declines, many of the other Viacom channels aren't. MTV and Comedy Central, for instance, averaged about a quarter of Nickleodeon's average monthly viewers in the October through May time period, according to Nielsen and Nomura Research.

Pay-TV distributors complain about media companies' preference for bundling their more popular channels with smaller, less-watched ones. DirecTV says it carries 17 Viacom-owned channels. "We believe Viacom should be willing to give your family the choice to pay for only those networks you watch," said DirecTV's Mr. White in a video message on the satellite provider's website. "Viacom continues to insist on an all or nothing approach. They demand that you pay substantially more for all 17 of their channels or you won't get any of them at all." "We've given them rates for taking our channels any way they like," said a Viacom spokeswoman, but she added that the entire group of channels get a discounted rate.

In a blog post late Monday night, Viacom Inc. said that DirecTV had approached it with a proposal that "included a lower rate than Viacom receives from any other distributor in the industry." "With this offer, our negotiations have reached an impasse," Viacom said. DirecTV has put up a website where customers can select different Viacom shows and find places online to watch the content through portals like Netflix, Hulu, Amazon Prime and iTunes. It is also tweeting to customers with the hashtag #DIRECTVhasmyback. Wall Street Journal

Just what the Republican-led Voter ID effort in Pennsylvania needed - another link to GOP presidential hopeful Mitt Romney. The Philadelphia City Paper posted a story over the weekend about how the Corbett administration, through the Department of State, has awarded a $260,000 contract to a consulting firm called the Bravo Group to help do community outreach for the state's new law requiring voters to show identification at the polls. As City Paper journo Daniel Denvir reporter noted, Bravo is run by Chris Bravacos, a former state GOP party exec and a Romney fundraiser.

This new wrinkle comes as the GOP-controlled legislature and Gov. Corbett, a Republican, continue to fend off criticism that the state's new Voter ID law is little more than a thinly-veiled attempt to suppress the Democratic vote in an election year. Critics of the law have argued that the measure will disenfranchise the poor, the elderly and other groups that tend to check the D column at the polls. Department of State spokesman Ron Ruman said in an interview Tuesday that the $260,000 contract was competitively bid, and that it requires Bravo to conduct research, develop outreach materials and coordinate with community groups across the state to help educate voters on the new law.

The contract is being funded through roughly $5 million in federal Help America Vote Act dollars. The rest of the $5 million, said Ruman, will be used on a separate and much more lucrative contract - with an as-yet-to-be-named firm - to develop print, radio and television ads, as well as for the ad buys. Bravo, along with five other companies, has also bid for the advertising contract, which Ruman said should be awarded by the end of the month. But a few of the sample ads that were developed in-house by Bravo as part of their application for the ad contract were posted on the firm's Vimeo page and picked up by City Paper. One talks about the importance of voting and includes black-and-white images of important moments in the U.S. voting history, including the suffrage movement. Sean Connolly, a senior director at Bravo, called that video a "draft concept, created for internal use." It was not, he said, included in the firm's formal bid for the state ad contract, and not part of the public record, for that matter.

As for the firm's $260,000 state contract for public outreach, Connolly said Bravo "was selected through a competitive state procurement process." "We have a proven track record," said Connolly. Asked whether Bravacos' personal political views would influence any of the firm's community outreach efforts, Connolly said: "Not at all." blog