Suddenlink dropped 24 Viacom channels for its 1.1 million video subscribers on October 1, 2014, following failed negotiations between the two parties to reach a carriage renewal deal. Both Viacom and Suddenlink have set up dedicated websites to explain their side of the story and, as can be expected, blame is being cast on both sides. Viacom says that it accepted Suddenlink's last minute offer but the cable operator rejected its own proposal and instead opted to drop its channels. Suddenlink contradicts this claim stating that Viacom has rejected all its offers including one made on September 30. Such contradictions and blame are common during heated carriage fee disputes, and Viacom has been through this just recently with Cable One. Following Cable One's lead, Suddenlink becomes the largest operator to currently black out Viacom channels.
As in previous disputes that lead to a black out, Viacom is blocking Suddenlink ISP customers from viewing its shows on its web portals, a move that continues to stir controversy. For its part, Suddenlink will be adding or moving channels to replace Viacom channels including FXX, Hallmark Channel, Own, Pivot, and the Smithsonian channel, which comes from the newly inked deal with CBS.
Meanwhile, both parties are finding more success with other negotiations. Suddenlink had success with CBS, reaching a carriage renewal agreement for CBS stations and networks as well as multiscreen rights. Not to be outdone, Viacom announced that it reached a carriage renewal agreement with Verizon FiOS, which also includes multiscreen and digital rights.
A classic Greek drama could not have played any better than this spat between Suddenlink and Viacom. As IHS commented on September 30, 2014 both sides in the dispute faced a scenario where Viacom's cable channels could be dropped from 1.1 million pay TV households. Unfortunately for both parties, the train wreck happened, paving the way for a fair amount of pain for both companies.
Viacom is going to suffer on two fronts, first it will earn less affiliate fee revenue in coming years, likely to the tune of 1% to 2% of US total. Secondly, and more importantly, is the fact that a second pay TV operator has pushed back on the value Viacom attributes to its own networks. For Viacom reduced viewing will likely mean a reduction in advertising revenue which makes up the majority of its income.
At Suddenlink executives are now set on an unknown path. On one hand they are likely to experience a cost savings by substituting Viacom's networks with lower priced independent fare, but it is a risk too. As we saw with CableOne the possibility for significant subscriber defection to other pay TV platforms exist without Viacom's networks. On the other hand, Suddenlink claims that its subscribers consumption of Viacom content has been on a steady decline, amounting to a 30% reduction in viewing in the last few years. Suddenlink has also inked recent renewal deals with both CBS and Disney, the latter causing a pain point with hikes at ESPN. Dropping Viacom networks may help pay for increases at ESPN which has the highest affiliate fee in the business, averaging north of $6.00 per subscriber per month.
Some Suddenlink subscribers will defect to other pay TV platforms as they are unwilling to live without Viacom content, however IHS believes that number will be significantly less than that of CableOne. As IHS stated in our September 30, 2014 article on the subject, Suddenlink has aces up its sleeve that CableOne does not.
For both parties involved, the non-renewal will be moderately painful. For Viacom the addition of Sony's pay TV OTT service which is slated to launch in Q4 2014 will offset the loss of Suddenlink income. For Suddenlink customers the addition of independent channels will likely not fill the void completely, but the company continues to improve both its broadband speeds and TV Everywhere offerings