Carriage dispute is just latest this summer

Seventeen cable channels owned by Viacom went dark on DirecTV minutes before the stroke of midnight ET Tuesday as the companies failed to hammer out a new distribution agreement.

The two sides jockeyed over carriage fees for powerful cable networks including Nickelodeon, MTV, Comedy Central, BET, VH1, CMT and Spike.

“We have absolutely no problem compensating Viacom fairly, but they have now knowingly put our customers in the unreasonable position of either accepting their extravagant financial demands or losing some of their favorite TV shows,” said Derek Chang, executive VP of content, strategy and development at DirecTV, in a statement issued shortly after the networks dropped off the satcaster before midnight. “We feel our customers should not have to pay more for these networks than the customers of any other TV provider. We reiterated this to Viacom today and have not heard back from them.”

Viacom issued a statement of its own early Wednesday. “We are deeply disappointed that DirecTV dropped Viacom’s channels before our midnight deadline this evening, severing our connection with its nearly 20 million subscribers nationwide. We proposed a fair deal that amounted to an increase of only a couple pennies per day, per subscriber, and we remained willing to negotiate that deal right up to this evening’s deadline.”

The high-profile dispute is a warning that nothing is off limits as technology shifts and industry players draw lines in the sand.

Viacom and DirecTV’s seven-year contract expired last weekend.

DirecTV said Viacom execs sent the satcaster a letter late Monday demanding that the networks be taken down. DirecTV called it an attempt “to leverage a 30% increase, that’s an additional $1 billion, from our customers.”

“We asked Viacom to allow us to keep the channels up while we continue to negotiate, but they refused. We’re working diligently on a new agreement to keep making these channels available at a fair price to our customers,” the satcaster said.

Viacom, for its part, said DirecTV rejected all proposals and countered with a “lower rate than Viacom receives from any other distributor in the industry. With this offer, our negotiations have reached an impasse.”

“The expired deal is seven years old, ancient by the standards of the ever-evolving media industry, which means that DirecTV has enjoyed way below market rates for Viacom’s networks for a very long time,” the conglom added.

DirecTV has about 20 million subscribers, and the development is shocking, potentially hitting one of the most powerful and widely distributed network groups in the nation. But it comes after a dramatic dip in Nickelodeon ratings and with MSOs taking an increasingly hard line against fee increases.

DirecTV’s smaller rival Dish dropped AMC Networks, home to popular series “Mad Men” and “The Walking Dead,” from its lineup 10 days ago.

At a recent investor conference in Gotham, DirecTV CEO Michael White threatened to drop channels considered overly expensive. “If we have to go dark, we are going to go dark. We will do what it takes,” White said.A report by Bernstein analyst Todd Juenger speculated that given Nick’s ratings woes, dropping the iconic networks, once inconceivable, had become merely improbable. “We don’t know if a distribution conflict will happen next week, or in three years, or never,” he wrote in June.

Viacom said it accounts for 20% of DirecTV viewing but less than 5% of its fees currently. Both sides felt a pinch from Wall Street Tuesday. Viacom shares closed down 2.5%. DirecTV was off 0.6%.

Media analyst Rich Greenfield of BTIG said DirecTV would be making a mistake to let the networks go despite the ratings dip at Nickelodeon, which some have attributed in part to cannibalization from online services like Netflix. “The viewership of online programming is still dwarfed by the size and scale of Viacom’s content,” he said.

Viacom said it has been negotiating for months and offered DirecTV an extension past the agreement’s original June 30 expiration date. As recently as Monday, it said, there had been significant movement in direct conversations with DirecTV.

(Andrew Wallenstein contributed to this report.)

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