ABC and Viacom Provide Illustrations of the Shape of Things to Come

The proliferation of channels for delivering entertainment, news, and dog pictures is now a defining characteristic of the markets where media firms compete.  Competition is increasingly about who controls popular channels where content must appear to reach large audiences.

This creates a potential for conflict when one company owns a channel and another company produces content for the channel.  Each company needs the other's product to succeed.  But the balance of power in these relationships will often be uneven.

Two news stories this week illustrate how this new reality works.  ABC just carried out its threat to pull the station with the Oscars from Cablevision, a major cable television company in Connecticut, New York and New Jersey.  Viacom, meanwhile, is removing its popular Comedy Central programs from Hulu, a web site offering free full-length television programs and movies.

Both disputes are about how much the distribution channels will pay the content providers.  But there appear to be significant differences in the balance of economic power.

ABC vs. Cablevision

ABC is negotiating to increase the amount that Cablevision pays to distribute ABC's programs.  The network receives payments from Cablevision subscribers for all of its programming, including ESPN and ABC Family. So the threat to black out ABC's New York television station before the Oscars begin was intended to put public pressure on Cablevision.

Right now, ABC's New York station is reminding viewers its programs are "Always Free Over the Air!"

But more than 3 million subscribers receive ABC's programs via Cablevision.  The network cannot afford to lose that many potential viewers for any length of time.  ABC's advertising revenues are based on the number of people watching its programs.  Large numbers of Cablevision subscribers are not likely to return to watching broadcast television.

Meanwhile, Verizon is advertising a deal aimed at Cablevision subscribers, hoping they will switch to Verizon's fiber optic service that bundles internet access with cable television.  But ABC's problem won't be solved if a significant number of people switch to Verizon. The network will just have to negotiate with a different company for access to a distribution channel.

Viacom vs. Hulu

Viacom is removing some of the most popular programs on Hulu, such as "The Daily Show with Jon Stewart" and "The Colbert Report."  This dispute is over advertising revenue that Hulu divides with content providers like Viacom.  Viacom wants a larger share of that revenue.

Hulu is growing rapidly, but that growth depends on popular programs like the ones Viacom is about to remove. And Hulu cannot control access to viewers the way that Cablevision does.

Fans of the Viacom shows can easily switch to Viacom's own web sites to watch their favorite programs.  The report that Hulu "will direct users to those (Viacom) sites" points to the balance of economic power in this dispute.

Hulu has not yet earned a profit. If Hulu loses a significant share of its audience after the split, Hulu will be forced to reconsider its deal with Viacom.

Still, both companies describe the split as amicable because both companies know they might not be breaking up for good.

Hulu was developed to find a profitable model for the internet distribution of television programs.  Hulu's owners include NBC, Fox and, it's worth noting, ABC.  Viacom owns multiple cable television networks.  So all of the companies have a shared interest in finding ways to make Hulu work.