Duo find resolve in contract battle

After escalating quickly into a public war of words, the contract battle between Time Warner Cable and Viacom ended quietly in the wee hours of New Year’s Day with a deal that averted the threatened blackout of MTV, Nickelodeon, Comedy Central and 16 other Viacom-owned channels.

The deal to renew Time Warner Cable’s carriage agreements for the Viacom owned cablers was confirmed by the sides shortly after 2 a.m. Thursday, two hours after the 12:01 a.m. expiration of the previous contract. Although the sides went to war via the media, talks between Viacom and Time Warner Cable execs continued all day Wednesday and past midnight Eastern time in an effort to keep the channels from going dark.

The long-simmering contract battle between Viacom and TWC went public late Tuesday evening as both sides accused the other of making unreasonable demands that were roadblocks to a new three-year carriage agreement for 19 of Viacom’s 20 cablers on TWC-controlled systems, which reach 14.7 million subscribers in New York, L.A. and other major markets. TWC is the nation’s second-largest cable operator, behind Comcast Corp.

Viacom made the first moves, reaching out to reporters late Tuesday with details of the talks and the approaching deadline. On Wednesday, Viacom bought full-page ads in the New York Times and Los Angeles Times featuring an image of Nickelodeon’s “Dora the Explorer” character under the headline “Why is Dora Crying?” The ad urged viewers to call Time Warner Cable with complaints.

On Thursday, despite the eleventh-hour agreement, Viacom had a full-page ad again in the L.A. Times headlined “Why is SpongeBob Freaking Out?” and declaring that “Time Warner Cable has taken him off the air!”

“We are sorry (TWC subscribers) had to endure a day of public disagreement as we worked through this negotiation,” TWC prexy and CEO Glenn Britt said in a statement announcing the “agreement in principle” that prevented the channels from going dark on TWC systems. The sides said they would hammer out the final details during the next few days.

“We’ve been partners with Time Warner Cable for a long time, and we’re happy to be renewing that partnership for the benefit of their customers and our loyal viewers,” Viacom CEO Philippe Dauman said.

“It’s gratifying that we could reach an agreement that benefits not only our audiences but that is also in the best interest of both of our companies.”

Despite the niceties in the early ayem Thursday statement, TWC brass were clearly caught off guard late Tuesday by Viacom’s aggressive PR maneuver, which included the addition of a crawl alert on its channels warning viewers that hits ranging from “The Colbert Report” to “SpongeBob SquarePants” might soon be MIA on Time Warner Cable systems.

In a lengthy statement issued Wednesday morning, Britt returned fire by blasting Viacom for “trying to extort another $39 million annually” from TWC. “We sympathize with the fact that Viacom’s advertising business is suffering and that their networks’ ratings have largely been declining. However, we can’t abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers,” Britt said.

Details of the tentative pact were still sketchy Thursday. Viacom had said it was seeking modest fee hikes that would amount to less than 25 cents per subscriber per month for the 19 channels. (Viacom’s BET is covered by a separate contract.) Viacom emphasized that it has recently cut renewal deals with numerous other cable operators, but months of talks with TWC brass reached an impasse earlier this week as the deadline approached.

Sources familiar with the situation noted that Viacom’s MTV Networks wing has been pressing hard for higher subscriber fees in its recent renewal negotiations with cable operators, in part because in past years Viacom has been willing to horse trade carriage for distribution commitments for new channels. As a result, the fees cabler operators pay for Viacom- channels tend to be significantly lower than the coin paid to comparable nets owned by Disney, News Corp. and other media congloms.

To support that claim, Viacom sent out a report issued Wednesday by Bernstein Research senior analyst Michael Nathanson, who estimated that TWC spends about $300 million annually in subscriber fees for Viacom nets. That amounts of 2.8% of TWC’s revenue from its cable programming services. “Viacom’s cable networks are materially under-priced relative to their peers, which we believe represents an opportunity for Viacom in the future,” Nathanson wrote.

Clearly, for Viacom, the future is now. With the company facing a deep slump in advertising revenue, like every other media conglom, Viacom topper Dauman was intent on boosting subscription revenue coin from one of its key distribs.

Time Warner Cable countered that it had an obligation to hold the line on programming cost increases in order to protect its subscribers. But the cable operator undoubtedly would’ve faced a flood of complaints from subscribers if the various channels — which included VH1, Spike TV, TV Land, Noggin, CMT and Logo — had suddenly disappeared from TWC’s lineup.

As Nathanson observed in his report, “Both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and TWC loses subscribers.”

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