Thursday, January 1, 2009

Viacom vs. TWC: Who has the power in the new media landscape?

Happy new year to all. Early this morning (technically after the old contract expired), Time Warner Cable and Viacom reached a new deal. Basically, the story was as follows: Viacom felt that TWC was paying too little for Viacom programming relative to the number of viewers. A Bernstein media analyst, Michael Nathanson, backed this up in a published report, and he appeared to be right. So, Viacom demanded a big raise for the next three year contract and TWC balked. Here's where it got interesting.

As the deadline drew near, Viacom launched a media blitz which emphasized that TWC customers would no longer get to see SpongeBob, Dora the Explorer, The Colbert Report, The Daily Show and MTV. It was a total of 19 Viacom cable stations that would drop off of TWC if a new deal wasn't reached. Viacom even ran crawls on their programming telling TWC customers to call TWC to complain about the potential loss of their favorite show. TWC countered with its own media campaign, but clearly Viacom grabbed the upper hand by getting there first and strong.

Nathanson pointed out that both companies would suffer significantly if a new deal wasn't reached. Some TWC subscribers would probably jump ship (presumably to satellite carriers) to get the Viacom programming. It would be difficult to get those people back once they were gone. However, Viacom would also lose almost 15 million TWC households and that would have a large impact on ad revenue.

So who really has the power in the new environment? Is content still King? It would appear that way in this case although the terms of the settlement were not publicly announced. (I imagine they will be released, leaked or calculated shortly.) Viacom looks like the winner as their media blitz seemed to force TWC's hand. But was it a smart tactical play or real negotiating power that really made the difference?

TWC's pipeline into millions of households generates a lot of revenue for Viacom and other content providers. That can't be overlooked. But looking ahead, as the Internet becomes a viable alternative as a delivery system for large format programming, it would seem inevitable that TWC (and Comcast and Cox and the rest of the cable systems) will see their power erode. And that's why they are working real hard to be in the telephone business (where the formidable competition is AT&T and the phone companies, along with VOIP).

In my mind, it's a tough time to be in the cable business. It would appear that content is indeed still the King. Perhaps TWC should work harder on developing proprietary programming while they still have a semi-captive audience.

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