By Joe Flint and Thomas Gryta
While AT&T Inc. waits to close its acquisition of
satellite-television operator DirecTV, AT&T's own pay-TV unit
U-Verse has some unfinished business with CBS Corp.
The current U-Verse programming agreement for CBS and its cable
channels, including Showtime, expires on June 30. The looming
contract dispute is also raising questions about the future of the
pay-TV distributor after AT&T closes its acquisition of
satellite broadcaster DirecTV.
CBS is frustrated at what they see as lack of interest from
AT&T to move discussions past a preliminary stage and expects
customers will lose access to its channels, according to people
familiar with the company's thinking. The bigger concern at CBS is
that the lack of interest is a precursor to shutting U-Verse down
and thus removing a pay-TV service from the market, the people
said.
A person close to AT&T countered that the two sides are
"knee deep" in negotiations and an agreement is expected to be
reached before the end of the month. To be sure, negotiations
between programmers and distributors often don't heat up until a
contract is on the verge of expiration, and griping about the pace
of the talks is often seen as part of the game.
If the CBS-owned television stations go dark on U-Verse, about
2.5 million subscribers would lose programming, with Dallas, Los
Angeles and Chicago as the largest markets affected. Another
several million U-Verse subscribers would lose Showtime.
When AT&T unveiled its plans to acquire DirecTV, one of the
reasons it cited was the ability to use the satellite broadcaster's
heft to lower the combined company's programming costs. DirecTV has
over 20 million subscribers and U-Verse has six million.
AT&T has been aiming to close its $49 billion acquisition of
DirecTV by the end of this month. At the time the merger was
announced, much of the industry wondered instead whether AT&T
would close U-Verse and try to move its subscribers to the DirecTV
platform.
AT&T has indicated it has no such plans. On a call about the
deal in May 2014, Chief Executive Randall Stephenson told analysts
he didn't see DirecTV "displacing our fiber-fed video product in
our U-Verse footprint."
If AT&T were planning to close U-Verse, as CBS fears, the
telecom company might have less incentive to renew a carriage deal
with a channel owner such as CBS. AT&T would still have rights
to carry CBS on DirecTV's satellite service for several more years,
under the companies' existing contract.
Even without the questions surrounding U-Verse's future, the
negotiations with CBS have been complex. Discussions over a new
contract started earlier this year but petered out; then, in March,
AT&T's request for an extension of the June 30 deadline was
denied, according to people close to CBS. The talks hit another
bump in April when Aaron Slator, who handled content deals for
U-Verse, was fired after he was named in a racial discrimination
lawsuit by a colleague.
If CBS and U-Verse don't reach a new agreement before the merger
being completed, then negotiations could switch to being overseen
by DirecTV's team, who would then not only have the knowledge of
their agreement with CBS but also the details of a one-time
competitor's contract.
Write to Joe Flint at joe.flint@wsj.com and Thomas Gryta at
thomas.gryta@wsj.com
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