By Shalini Ramachandran
For roughly two months, about 900,000 households in small towns across the U.S. haven't been able to watch
Nickelodeon, MTV or Comedy Central, as a result of a blackout of the Viacom Inc.-owned channels by some 60 small cable
So far, there is little evidence any more than a handful of the households care.
After bracing to lose as many as a 10th of their customers, the operators have lost less than 2% of their
collective subscribers, according to an industry group that represents the operators.
Some customers seem unperturbed. "Quite frankly, I can't say I did notice," said David Smith. The 64-year-old tire-
shop owner in Edinboro, Pa., is a subscriber to the local company, Coaxial Cable Television Corp. He said he hadn't
watched Viacom channels in at least a dozen years.
Viacom isn't worried either, saying it expects "no financial impact" from losing what is only about 1% of total
pay-TV households. As a result, with the cable operators unhappy about the price Viacom wants for the right to carry the
channels, executives say the blackout is likely to be permanent. Several have replaced the Viacom channels with others.
The situation signals a shift in the often-tense relations between pay-TV operators and entertainment companies.
With video choices increasing, operators are starting to push back at program cost increases by dropping channels
To be sure, high-profile channels such as the traditional broadcasting networks retain plenty of clout. Last year
Time Warner Cable Inc. blinked after a month-long blackout of CBS Corp.'s flagship network, following sharp subscriber
losses. But some pay-TV executives predict that channels increasingly will be carried only where there is viewer demand.
The markets in the current dispute are mostly rural and suburban, in states including Oklahoma, Minnesota, Iowa and
Idaho, where Viacom's portfolio of young-skewing channels with edgy programming popular in urban centers may not carry
as much sway. While Comedy Central features personalities including Jon Stewart and Stephen Colbert, executives at two
of the small cable companies said customers were more unhappy about missing "I Love Lucy" reruns on Viacom'sTV Land.
There are signs that the dispute, and the lack of viewer reaction, could embolden other operators to take similar
action. Jeff Janssen, vice president of sales and marketing at ImOn Communications, a Cedar Rapids, Iowa, cable company
that no longer has Viacom programming, said he had been fielding calls from other larger cable operators who have been
inquiring about the results of the drop.
"I think there are going to be a significant number of larger cable operators that may follow suit" with other
major programmers, Mr. Janssen said.
The operators in the dispute--the biggest of which is Cable One, owned by Graham Holdings Co., formerly known as
Washington Post Co.--for years have bought programming through a consortium called the National Cable Television
Cooperative Inc. But when the NCTC reached its most recent agreement in April with Viacom, many operators thought the
terms too onerous and declined to sign on.
Many calculated that they would have lost more customers by increasing cable rates than by dropping the Viacom
channels. Smaller cable operators already pay higher per-subscriber fees than big operators, such as Comcast Corp.,
which have the leverage to negotiate volume discounts. Cable executives say the new Viacom agreement would have meant
paying more than a 100% increase from 2013 rates over the course of the five-year deal.
"We're happy with our agreement with the NCTC," said Viacom spokesman Mark Jafar. "It is unsurprising to us that
the level of switching has been relatively low" since in most of the markets customers don't have another broadband
option than their local cable operator. Even if they wanted to switch TV providers, Mr. Jafar said, they would have to
keep the same Internet provider--an "enormous hurdle" to customers switching.
NCTC Chief Executive Rich Fickle said that a lot of the operators surveyed customers ahead of time to estimate
potential subscriber losses.
"It's really kind of unprecedented," Mr. Fickle said, in that "it's not really a dispute from their standpoint" but
a permanent decision.
"My customers have proven to me that they are OK without it," said Chris Lovell, general manager of Coaxial Cable,
which serves about 3,000 customers. The Pennsylvania company has replaced the programming with high-definition channels
such as Lifetime and History.
Since Coaxial Cable dropped Viacom, only 31 customers--about 1% of its customer base--have dropped their TV
Coaxial customer Tom Angelo said his 8-year-old daughter, who would watch "SpongeBob SquarePants" on Nickelodeon "
over and over," is happy enough with the new kid-friendly channels like Sprout that Coaxial Cable has added in place of
the Viacom channels. When she does want to watch Nickelodeon shows, Mr. Angelo says he finds full episodes on Amazon.com
Inc.'s Prime Web video service and even on YouTube. "We actually don't miss it at all."
While the two sides appear to be willing to move on without each other, one wrinkle in the dispute has caught
regulators' eyes: Viacom has blocked the full episodes of programs such as "The Daily Show with Jon Stewart" on its
websites for the broadband customers of the cable operators who have dropped its TV channels. Margo Davenport, a lawyer
in the Federal Communications Commission's media bureau, said the move is "something we're concerned about."
The American Cable Association, which represents the smaller operators, says Viacom's moves violate the spirit of "
net neutrality," the principle that all Internet traffic should be treated equally.
But people familiar with the FCC's thinking said the issue is separate from net neutrality as it is defined today,
and it is murky whether the FCC has legal authority to intervene, since under federal law, a programming vendor has the
right to determine where and under what circumstances its programming appears.
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