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DirecTV’s tough tack on Versus a strategy shift?
Published September 7, 2009
Comcast executives were blindsided by DirecTV’s decision to take Comcast’s sports channel, Versus, dark last week.
But they weren’t alone. Across sports media boardrooms, executives were shocked that the video provider most closely associated with sports content would wind up dropping one of the country’s top sports channels.
Many wondered whether the move, combined with former President and CEO Chase Carey’s exit to News Corp. over the summer, signaled a new and potentially significant philosophical shift at the satellite operator, which built its brand by closely aligning with powerful sports properties, like NFL Sunday Ticket.
Executives from rival sports networks believe DirecTV’s move represents nothing more than one messy negotiation with one sports network. But the message from DirecTV seems clear: It will push back when it can to curb the cost of sports channels.
That was hardly the message that was being heard last month, though. Up until last week, it seemed like business as usual during the carriage negotiations. Though DirecTV had threatened to drop the all-sports network, nobody at Comcast headquarters in Philadelphia really believed DirecTV would follow through on the threat.
But it did, and the two sides remain far enough apart that a resolution does not appear to be close. For now, Versus finds itself in 14 million fewer homes, putting its household distribution at 62 million.
Both sides seem content to wait until just before the start of the NHL season before re-engaging. Comcast believes its NHL programming, particularly around the playoffs, will be too powerful for DirecTV to ignore.
DirecTV seems willing to take that bet.
The stakes are high. If DirecTV bows to pressure on Versus, it will have a harder time negotiating deals with other sports networks, which are the highest priced networks on cable and satellite systems. ESPN, for example, costs more than $4 per subscriber per month. Most regional sports networks are above $2. And TNT is around $1.
DirecTV had been paying Versus about 21 cents per subscriber per month.
Up until Aug. 31, the day before DirecTV dropped Versus, negotiations seemed to be playing out exactly as it expected, with the pushes and pulls normally associated with these types of deals.
With its contract expiring at the end of August, Comcast came out with an aggressive initial offer earlier in the summer — a 20 percent fee increase — while seeking full carriage on DirecTV’s biggest tier, which would have added about 4 million homes. DirecTV quickly rejected that offer.
Comcast eventually came back with a lower offer, which DirecTV also rejected.
DirecTV had gained the reputation as a bluffer over the years, and Comcast executives did not believe Versus would really go dark.
Comcast representatives spoke to DirecTV early in the day on Aug. 31 and expected a long day of negotiations up to the midnight deadline.
But nothing happened. There wasn’t the flurry of calls or frantic negotiations that typically define these battles.
By late afternoon, it became obvious to Comcast executives that the channel was going to go dark. “It was like radio silence,” one Comcast executive remarked.
The two sides have not spoken since.
Sports media executives last week expressed surprise that DirecTV had taken the extraordinary step of kicking Versus off its service. Over the past year, as the economy went into a tailspin and DirecTV’s growth slowed, the satellite operator started looking for ways to keep its expenses in check. While Carey was still in charge, DirecTV executives developed a plan that would see the satellite operator take a stand with Versus.
Versus’ renewal was up at the middle of its least-viewed month of the year. In August, for example, Versus averaged just 173,000 homes during prime time, putting it behind such channels as the TV Guide Network and Discovery Health, both of which cost less than a nickel per subscriber per month. Its sports programming during the month consisted of the poorly rated Indy Racing League and the IAAF World Championships.
So not only were its ratings low, but now the channel was negotiating a renewal on its own — not bundled in with other Comcast channels, which would have likely helped.
When Versus cut its original DirecTV deal, though, it figured it would be in a much stronger position. But many of its attempts to secure high-profile rights failed. It unsuccessfully tried to get an NFL package and lost out on the U.S. Open Tennis Championships to ESPN and Tennis Channel despite bidding more for the package.
Versus temporarily will add 4 million subscribers from EchoStar, which will try to take advantage of this spat. Several cable operators, including Time Warner Cable and Cablevision, also have expressed interest in temporarily moving Versus to better penetrated tiers while its fight with DirecTV continues, a source said.
But DirecTV carriage is essential for any sports network that wants to be in the mix for future TV packages from the biggest professional sports leagues. The next few weeks should determine whether Versus or DirecTV has more leverage in this fight.