The Daily Walk of Shame: DirecTV vs. Versus
October 21, 2009
This new Motley Fool series examines things that just aren't right in the world of finance and investing. Here's what's got us riled today. If something's bugging you, too -- and we suspect it is -- go ahead and unload in the comments section below.
Today's subject: For nearly two months now, DirecTV (Nasdaq: DTV) and Comcast (Nasdaq: CMCSA) have been exchanging verbal jabs, like a couple of goons squaring off at center ice. The only problem is, 14 million viewers can't watch any of it.
They're squabbling over Versus, a Comcast-owned sports channel that carries everything from cage fighting and IndyCar races to college football and the Tour de France. It's also the National Hockey League's primary U.S. broadcast partner, with exclusive rights to 54 regular-season games this year and several postseason games next spring, including two games of the Stanley Cup Final.
DirecTV abruptly yanked Versus from its feed on Sept. 1, after the sides couldn't agree on a contract renewal. The NHL season is now nearly three weeks old, and DirecTV customers have already missed 10 Versus games.
According to the Sports Business Journal, Comcast initially wanted a 20% fee increase for its growing sports network. DirecTV refused, and it still wouldn't give in even after Comcast reeled in its demands. Versus now says it's not seeking a fee increase and reportedly has an offer on the table whereby even if the number of DirecTV subscribers grows, DirecTV's payment to Versus won't.
Why you should be indignant: Instead of quietly working to get a deal done, DirecTV started publicly slinging mud. Where Versus used to appear on the channel lineup, DirecTV placed a notice decrying Comcast's "unfair and outrageous demands." In a separate statement, DirecTV said Versus was "basically a paid programming and infomercial channel with occasional sporting events of interest" and, in reference to the initial request for a fee increase, remarked that Comcast's terms were "simply piggish."
Versus' beef is that DirecTV wants the option to move Versus from its current tier, which has approximately 14 million subscribers, to a sports-only package that costs an extra $12 a month and, according to Versus President Jamie Davis, would bring in about 6 million fewer viewers. Neither side seems likely to budge anytime soon, especially since DirecTV claims re-tiering is a fair option, given Versus' small viewership numbers and considering that satellite competitor DISH Network (Nasdaq: DISH) carries the channel in a package with low subscriber penetration. Particularly astounding is that DirecTV says it's treating Versus as if it's negotiating a new deal with a new channel and will gauge the market as such.
But is something else going on here? On its website, where it takes yet another shot at Comcast, DirecTV takes the time to point out that Versus' parent is "the largest cable company in the U.S. and our largest competitor." So is DirecTV simply being stubborn with its biggest rival?
After all, the cost to carry Versus seems far from "outrageous." In its online missive, DirecTV claims that by holding firm against Comcast, it's only thinking of its customers "in these difficult economic times," since the company would have to pass on any cost increases to the end user. How magnanimous -- except that, according to the Sports Business Journal, DirecTV had been paying Versus a whopping 21 cents per subscriber per month. For perspective, DirecTV pays Disney's (NYSE: DIS) ESPN more than $4 per subscriber per month. Sure, ESPN is a much bigger moneymaker, but even a 20% increase would have raised Versus' comparatively paltry 21 cents a month to about a quarter. I'm sure DirecTV's customers wouldn't mind whatever small-change increase would accompany a new deal with Versus, especially compared with the extra $12 they'd have to pay to access the channel on a sports-only tier.
Where's the NHL?
Other than placing an ad on nhl.com asking fans to email DirecTV, the league has mostly stayed out of the fracas, like a circling referee waiting for one of the fighters to fall to the ice. That's an odd stance for a league that's struggling to build a U.S. audience. And the NHL hardly needs another black eye right now: It just finished fighting an offseason court battle to maintain control of its bankrupt Phoenix franchise, after Research In Motion (Nasdaq: RIMM) CEO Jim Balsillie tried to strong-arm the league into letting him buy the team and relocate it to Hamilton, Ontario.
What now? Let's review.
* DirecTV thinks Versus is a worthless infomercial channel and says it's fighting this battle to contain customers' costs, yet it wants the option to charge viewers $12 a month for the luxury of seeing all those ads for Snuggies and Jack LaLanne Power Juicers.
* Comcast is squabbling about losing 6 million viewers, yet Versus has already lost 14 million potential viewers by not being on DirecTV at all.
* The NHL wants to grow its U.S. market share, but it stands back and does virtually nothing while its leading U.S. broadcast partner remains blacked out on the nation's largest satellite-TV provider.
So, Fools, who blinks first? More pointedly, who needs to blink first? DirecTV's broadsides against Comcast have been tremendously unprofessional, but the fact remains that Versus needs DirecTV more than DirecTV needs Versus. And the NHL needs them both.
Right now, all three are worthy of a game-misconduct penalty.