Viacom’s $5 Billion DirecTV Deal Keeps the Bundle Intact for Seven More Years

Published on July 20, 2012
by Peter Kafka

Remember when the DirecTV-Viacom standoff was going to be the first step of the beginning of the end of TV? Or at least the end of the bundle?

Turns out you’re going to have to keep waiting for that. For a long time.

The feud between the pay-TV programmer and the pay-TV provider ended this morning, the way every single one of these disputes has: The pay-TV provider agreed to pay more for the programming, and will pass those fees on to its customers.

In this case, Viacom got a bump of more than 20 percent for its stuff. As Bloomberg reported earlier this morning, that means that CEO Philippe Dauman will get more than $600 million for his shows this year.

And because those fees will escalate over the course of a seven-year contract, that means the overall deal will be worth more than $5 billion, the programmer is telling Wall Street today. Which is why the company was perfectly content to take an estimated $14 million hit a week while its shows were off the air.

DirecTV can also claim victory, because it’s paying less than Viacom asked for originally. And Wall Street seems just fine with it for both companies, because the prices of their shares are basically flat today.

But weren’t other issues in play here, too, like digital rights and carriage for Epix, Viacom’s HBO-like service? Yes. But also, not really. At the core, this dispute was only about the money DirecTV will pay for Viacom’s shows. The end.

No one ever seriously talked about breaking up the bundles that make up the foundation of the pay-TV business — the ones that mean that people who want to watch Jon Stewart on Comedy Central have to pay for access to Country Music Television, too. Because those bundles work quite well for both sides. And if new would-be players like Apple want in, they’ll have to accept the bundles, too.

That model will continue to work until pay-TV customers actually stop paying for TV in significant numbers. Or, more likely, a couple generations of would-be pay-TV subscribers get out of college, and never get a pay-TV subscription.

But that’s a scenario that’s going to take quite a while to play out. And since deals like today’s pact last for seven years or more (the Disney/Comcast deal signed earlier this year goes on for a decade), it’s going to be very hard to change the status quo.

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