DirecTV Is Wrong, And Viacom Is Right

 |  Includes: T, VIA
by: Shaun Connell

I'm a little biased here, but even I can ignore my bias and accept that Viacom is dead right in their spat with DirecTV (DTV). I like DirecTV as a company, generally, and dislike Viacom (NASDAQ:VIA), including its programming. But it should be obvious that the soap-opera drama between the two companies has one side that's clearly staying consistent.

Right now, Viacom has asked for a 30% increase after their last 7 year contract. That's a couple of pennies per day per DirecTV subscriber of an increase.

Or, considering the contract they signed was 7 years ago, this means they'll be seeing a yearly increase of about 4%. Not particularly demanding at all. Especially not compared to the rate increases DirecTV has pushed on to consumers.

DirecTV's Response: Drop Dead.

DirecTV's response over the last couple of weeks has essentially been the same offer as before, with an outright refusal to pay several cents more per viewer since the last time they negotiated a contract 7 years ago.

This is patently absurd. Then, yesterday, Viacom's channels were essentially turned off for DirecTV.

Comedy Central, Nickelodeon, MTV, VH1 -- tons of channels are suddenly no longer accessible to DirecTV's subscribers who are paying good money -- at increasing rates -- to a company that refuses to pass those increases on to companies making it all possible in the first place.

This isn't just about greed, because greed is great for a company to care about. This is about a company being blindly greedy to the point of being willing to lose subscribers. That mentality and approach is just risky business, and shows that DirecTV isn't valuing their subscribers as they ought.

Why All of This Matters

DirectTV has essentially shown they're willing to sacrifice up to 20% of what their viewers view, because they are willing to bicker over what should be seen as perfectly fair increases in costs.

This is during a time when they've grown their subscriber base by about 5% per year for the last several years, and in the last year saw their cable rate go up a good 7%. They're not keeping things static. They're passing costs on to subscribers, but aren't passing profits on to content creators.

In the end, this is a giant red flag to me. I like DirecTV. I really do. They've done a great job in the last couple of years, but in the end, I'm glad I'm not a subscriber, and I wouldn't ever remotely consider becoming one at this point. They've shown where their loyalties lie, and it's with small scale profits rather than big picture customer satisfaction. Because of this, I don't own and won't open any sort of position in either company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.