CBS Blackout on DirecTV Is What's Wrong With the TV Market
(Bloomberg Opinion) -- If the market for television and video-streaming services wasn’t frustrating enough for consumers, now comes news that millions paying for DirecTV suddenly can’t watch CBS, the most popular TV network in the U.S., due to a contract dispute between the media giants. The good news is that it’s not yet football season, and it’s also in both companies’ interests to reach an agreement soon. The bad news is that the channel-blackout trend is only getting worse.
CBS went dark over the weekend on AT&T Inc.’s DirecTV, DirecTV Now and U-verse platforms for customers in cities including New York, Los Angeles, Chicago, Philadelphia and Atlanta, as they tussle over the renewal rate for AT&T’s pay-TV operators to carry CBS programming. The blackout deprives subscribers in those markets of popular shows such as "The Late Show with Stephen Colbert" and "Big Brother" – an inconvenience that’s becoming all too familiar for viewers. Already more than 200 TV markets have had broadcast signal disruptions this year, the most ever, according to the American Television Alliance, a group that lobbies for cable and satellite providers. AT&T said it has offered CBS “an unprecedented rate increase.” CBS’s stance is, yeah, no kidding, given that it’s been seven years since the deal was last renewed. My feeling: groan.
It’s deja vu for AT&T customers because the company was also involved in a dispute earlier this year with Viacom Inc., the owner of cable channels such as MTV and Nickelodeon. The two sides reached a deal relatively quickly – but not before they traded jabs in public statements and flooded social media with annoying campaigns to rile up customers and pass the blame. On March 19, AT&T’s line was that Viacom networks are “no longer popular.” Just a few weeks later it was whistling a different tune, featuring the same networks prominently on its DirecTV Now sign-up page to highlight the streaming package’s channel lineup.
Customers sure are tired of this old song and dance. They don’t want to hear “CBS has put you into the middle of its negotiations,” which DirecTV tweeted to an angry customer on Saturday, or that “loyal viewers are now bearing the burden for AT&T’s unwillingness” to bend, as CBS put it in its own press release. It doesn’t matter whether AT&T “dropped” the network or CBS “pulled its signal” from AT&T. Subscribers just want consistent service at a fair price, and that seems like it will be harder and harder to get, thanks to an industry that’s turning more anti-competitive to protect its profit margins in the wake of cord-cutting and consolidation.
Take AT&T: Since acquiring HBO parent Time Warner last year for $102 billion (including debt), the company has shifted the spotlight away from its shrinking satellite-TV business and drab DirecTV Now product, and instead onto the sexier media-content division, which it renamed WarnerMedia. AT&T has been willing to sacrifice pay-TV customers to boost profitability on that side of the business through price hikes, while its WarnerMedia unit gears up to launch a new Netflix-like app called HBO Max. Unlike DirecTV Now, which is a virtual cable skinny bundle, HBO Max will comprise only WarnerMedia’s own content and compete with AT&T’s other services. This content will include “Friends,” one of the most popular series among the streaming set, which WarnerMedia is reclaiming from Netflix and putting on HBO Max.
This is just one example of how the media giants are becoming more insular, preserving their content for their own products and playing hardball with competitors, making it harder for customers to find everything they want to watch through a single affordable subscription. In AT&T’s case, this points to the drawbacks of allowing a pay-TV and wireless giant to also control some of the most attractive TV content.
Similarly, Walt Disney Co., fresh off its $85 billion purchase of 21st Century Fox’s entertainment assets, is prioritizing the launch of its Disney+ app, which it plans to bundle with ESPN+ and Hulu in an effort to topple Netflix. That means that in the future if you want certain Disney, Pixar, Marvel or “Star Wars” content, a Disney+ subscription will be a requirement. Want HBO or CBS, too? That’ll be a separate subscription for more money. (The CBS All Access app costs $5.99 a month.)
In the AT&T-CBS standoff, both are motivated to end the blackout. CBS is in talks over a merger with Viacom, so it doesn’t need such distractions. The AT&T contract is also critical for CBS to meet a target of $2.5 billion in annual retransmission revenue by 2020, according to John Butler, an analyst for Bloomberg Intelligence. As for AT&T, though it may be looking to emphasize profitability over subscriber count, it still shouldn’t be proactively showing subscribers the door.
Who will blink first? My guess would be AT&T. But customers really don’t care either way – they just want what they pay for. It shouldn’t be so hard.
To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.
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