Why Are These Companies Bickering Like a Couple of 8-Year-Olds?
Jul 14th 2012 10:36PM
Updated Jul 14th 2012 10:54PM
There's nothing more encouraging than watching grown men and women fight over what is basically nonsense. While two companies yell at each other in boardrooms, both companies' customers are left to languish along with shareholders. In a world of evil investment banks, crummy IPOs, and black box trading, this just seems like business as usual for corporations.
He did it!
If you're like nearly everyone in the U.S. and have watched television in the past 10 years, you've probably seen an ad from your service provider saying something to the tune of:
"As of ____, your favorite shows on _____ will be unavailable because ________. Call your provider today and demand action!"
Well, ____ if that isn't just the most annoying thing ever. Our two brats this time are DirecTV (NAS: DTV) and Viacom (NAS: VIA) . On Wednesday, DirecTV cut its millions of subscribers out from the mind-bending programming of networks such as MTV, VH-1, and Comedy Central (OK, I admit I love Comedy Central). Why would they do such a devilish act?
I imagine somewhere around 100% of you just guessed "money."
Viacom, along with all networks, raises fees a certain amount every year to the service providers -- it's business as usual. Though DirecTV thinks Viacom's request this year was downright highway robbery, even though, as I mentioned in an article earlier this week, DirecTV is enjoying some of the best growth it has ever seen.
No, he did it!
Cable rates rose more than 7% from the previous year. So with a proposed 30% increase in fees, Viacom is not helping its customers pay their monthly bills. Viacom reasons it a little better than "a 30% increase in fees," of course. In a recent statement from the company, the request seems much more reasonable:
We proposed a fair deal that amounted to an increase of only a couple pennies per day, per subscriber, and we remained willing to negotiate that deal right up to this evening's deadline. However, DirecTV refused to engage in meaningful conversation.
As Rick Munarriz recently pointed out, the trend of "unplugging" could be going mainstream in the near future. Companies such as Netflix (NAS: NFLX) and Hulu are just waiting for the cable and satellite companies to nail their own coffins shut so they can dominate the airwaves once and for all.
I'm not 100% convinced that is going to happen soon, but it's certainly a valid argument. And Netflix's recent report of a net subscriber base up 19% suggests people are once again interested in streaming services and moving away from the stubborn and expensive wired service providers.
Netflix's stock is up 3% on the news, while Hulu is investing half a billion dollars in content in an effort to step up product offerings and carve out a space in this still young business.
DirecTV doesn't like that it's being asked to pay substantially more for Viacom's programming while the aforementioned channels are now being offered on streaming Internet services. If there is an inevitable trend toward streaming, it will be awfully hard for the networks to ask cable and satellite companies for more and more money.
A business going the way of the dinosaur?
While these two companies throw sand in each other's eyes, the disruptive technology players continue to gain ground. For investors who follow the likes of David Gardner, these are companies you may already have investments in.
The article Why Are These Companies Bickering Like a Couple of 8-Year-Olds? originally appeared on Fool.com.Fool contributor Michael Lewis owns none of the stocks mentioned. You can follow him on Twitter, @mikeylewy. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
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