By Shalini Ramachandran
For roughly two months, about 900,000 households in small towns
across the U.S. haven't been able to watch Nickelodeon, MTV or
Comedy Central, as a result of a blackout of the Viacom Inc.-owned
channels by some 60 small cable operators.
So far, there is little evidence any more than a handful of the
households care.
After bracing to lose as many as a 10th of their customers, the
operators have lost less than 2% of their collective subscribers,
according to an industry group that represents the operators.
Some customers seem unperturbed. "Quite frankly, I can't say I
did notice," said David Smith. The 64-year-old tire-shop owner in
Edinboro, Pa., is a subscriber to the local company, Coaxial Cable
Television Corp. He said he hadn't watched Viacom channels in at
least a dozen years.
Viacom isn't worried either, saying it expects "no financial
impact" from losing what is only about 1% of total pay-TV
households. As a result, with the cable operators unhappy about the
price Viacom wants for the right to carry the channels, executives
say the blackout is likely to be permanent. Several have replaced
the Viacom channels with others.
The situation signals a shift in the often-tense relations
between pay-TV operators and entertainment companies. With video
choices increasing, operators are starting to push back at program
cost increases by dropping channels altogether.
To be sure, high-profile channels such as the traditional
broadcasting networks retain plenty of clout. Last year Time Warner
Cable Inc. blinked after a month-long blackout of CBS Corp.'s
flagship network, following sharp subscriber losses. But some
pay-TV executives predict that channels increasingly will be
carried only where there is viewer demand.
The markets in the current dispute are mostly rural and
suburban, in states including Oklahoma, Minnesota, Iowa and Idaho,
where Viacom's portfolio of young-skewing channels with edgy
programming popular in urban centers may not carry as much sway.
While Comedy Central features personalities including Jon Stewart
and Stephen Colbert, executives at two of the small cable companies
said customers were more unhappy about missing "I Love Lucy" reruns
on Viacom's TV Land.
There are signs that the dispute, and the lack of viewer
reaction, could embolden other operators to take similar action.
Jeff Janssen, vice president of sales and marketing at ImOn
Communications, a Cedar Rapids, Iowa, cable company that no longer
has Viacom programming, said he had been fielding calls from other
larger cable operators who have been inquiring about the results of
the drop.
"I think there are going to be a significant number of larger
cable operators that may follow suit" with other major programmers,
Mr. Janssen said.
The operators in the dispute--the biggest of which is Cable One,
owned by Graham Holdings Co., formerly known as Washington Post
Co.--for years have bought programming through a consortium called
the National Cable Television Cooperative Inc. But when the NCTC
reached its most recent agreement in April with Viacom, many
operators thought the terms too onerous and declined to sign
on.
Many calculated that they would have lost more customers by
increasing cable rates than by dropping the Viacom channels.
Smaller cable operators already pay higher per-subscriber fees than
big operators, such as Comcast Corp., which have the leverage to
negotiate volume discounts. Cable executives say the new Viacom
agreement would have meant paying more than a 100% increase from
2013 rates over the course of the five-year deal.
"We're happy with our agreement with the NCTC," said Viacom
spokesman Mark Jafar. "It is unsurprising to us that the level of
switching has been relatively low" since in most of the markets
customers don't have another broadband option than their local
cable operator. Even if they wanted to switch TV providers, Mr.
Jafar said, they would have to keep the same Internet provider--an
"enormous hurdle" to customers switching.
NCTC Chief Executive Rich Fickle said that a lot of the
operators surveyed customers ahead of time to estimate potential
subscriber losses.
"It's really kind of unprecedented," Mr. Fickle said, in that
"it's not really a dispute from their standpoint" but a permanent
decision.
"My customers have proven to me that they are OK without it,"
said Chris Lovell, general manager of Coaxial Cable, which serves
about 3,000 customers. The Pennsylvania company has replaced the
programming with high-definition channels such as Lifetime and
History.
Since Coaxial Cable dropped Viacom, only 31 customers--about 1%
of its customer base--have dropped their TV services.
Coaxial customer Tom Angelo said his 8-year-old daughter, who
would watch "SpongeBob SquarePants" on Nickelodeon "over and over,"
is happy enough with the new kid-friendly channels like Sprout that
Coaxial Cable has added in place of the Viacom channels. When she
does want to watch Nickelodeon shows, Mr. Angelo says he finds full
episodes on Amazon.com Inc.'s Prime Web video service and even on
YouTube. "We actually don't miss it at all."
While the two sides appear to be willing to move on without each
other, one wrinkle in the dispute has caught regulators' eyes:
Viacom has blocked the full episodes of programs such as "The Daily
Show with Jon Stewart" on its websites for the broadband customers
of the cable operators who have dropped its TV channels. Margo
Davenport, a lawyer in the Federal Communications Commission's
media bureau, said the move is "something we're concerned
about."
The American Cable Association, which represents the smaller
operators, says Viacom's moves violate the spirit of " net
neutrality," the principle that all Internet traffic should be
treated equally.
But people familiar with the FCC's thinking said the issue is
separate from net neutrality as it is defined today, and it is
murky whether the FCC has legal authority to intervene, since under
federal law, a programming vendor has the right to determine where
and under what circumstances its programming appears.
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