DirecTV Attacks Weather Channel Fees

The Wall Street Journal

Demand for Reduction Follows Rise of Weather Apps, Web Use to Check the Forecast

By SUZANNE VRANICA, SHALINI RAMACHANDRAN and CHRISTOPHER S. STEWART

Updated Jan. 14, 2014 7:53 a.m. ET

Lake Michigan's North Avenue Beach last week. Weather Channel viewing rose during the cold snap. Getty Images

With more people using their smartphones to check for rain, the Weather Channel's place in the television universe is suddenly uncertain.

In a dispute that captures how changing media habits are disrupting the established TV world, DirecTV DTV +0.30% is seeking to reduce the fees it pays to carry the Weather Channel by more than 20%, according to a person familiar with the situation.

DirecTV's request has sparked a bitter confrontation that has caused the channel to be blacked out on the satellite-TV service since Monday night, in what is the channel's first blackout since it was launched more than 30 years ago.

DirecTV won't comment on its rate requests, but the satellite firm has made clear its view that a growing reliance on digital services has reduced the need for the TV channel.

"People are increasingly getting their weather info on demand on their devices, whether it's weather.com or apps," says Dan York, chief content officer of DirecTV. The proliferation of weather news on Web and mobile platforms is "decreasing value and usage on the linear TV service."

David Kenny, chief executive of the channel's parent, Weather Co., disagrees. "At the time of severe weather, TV is still where people go," he says. DirecTV's request for a "huge" fee reduction "didn't make sense, and we couldn't be the same service" if it was implemented, he added.

Weather Channel's average daily audience has fallen 19% to 214,000 since 2011, Nielsen data shows, although the average climbed to 326,000 between Jan. 3 and Jan. 11, when the weather in much of the U.S. turned unusually cold.

To be sure, some of Weather Channel's loyal fans have followed it online. Its websites and mobile apps have consistently been among the most popular. The sites drew 89 million unique visitors in November, according to comScore, up 8% from the previous month. Weather Co. sites—including Weather Underground—rank as the 13th largest Web property on smartphones, reaching about 33% of the mobile media audience, comScore estimates.

Sean Collier, a 36-year-old financial-software technician in Austin, Texas, says he used to rely on the Weather Channel on TV. But ever since he got his iPhone two years ago, the channel hasn't been much use to him.

"My Weather Channel watching is now zero," he says. "I use the Web and mostly mobile apps now for my weather needs," including the Weather Channel's mobile app.

Still, a viewer online or on a mobile app is worth less to the company than a TV viewer. Weather Co. sells ad time at higher rates on its TV channel than on mobile apps or the Web, media buyers say. And the fees paid by pay-TV operators ensure the TV channel is more profitable than the digital businesses, according to a person familiar with the company, even though the two sides account for roughly the same proportion of ad revenue.

Atlanta-based Weather Co., which is owned by a consortium that includes NBCUniversal Inc. and private-equity firms Blackstone Group BX +0.28% L.P. and Bain Capital LLC, is asking DirecTV for an increase of one cent a subscriber each month, according to the company. That compares with its current fee of 13 cents a subscriber a month, estimates SNL Kagan.

Mr. Kenny said Weather Channel wasn't making an "egregious" demand. "We are not trying to be...pigs," he said.

DirecTV is the second biggest pay-TV provider, serving more than 20 million people, so a blackout would have an immediate impact on the channel's potential audience. But accepting a reduction in its fees could hit the channel and its parent company, Weather Co., hard, and potentially lead other pay-TV providers to make similar demands. The channel is in more than 100 million households, according to the company.

The TV channel has revamped its programming to try to retain viewers. It has brought in high-profile talent, including Sam Champion, the long-time "Good Morning America" anchor, and reworked its TV programming to rely less on weather forecasts, adding other content including reality-TV programs.

But DirecTV is critical of that shift. Mr. York noted that 40% of the Weather Channel's content is now reality programming like "Highway Thru Hell," while "our customers have been asking for 24/7 weather coverage."

The dispute echoes rising tensions between pay-TV operators and TV-channel owners over fees and, more recently, digital availability of programming. DirecTV, like other pay-TV distributors, has been a vocal critic of rising programming costs demanded by TV-channel owners. DirecTV Chief Financial Officer Pat Doyle said in December at an investor day that "we are going to continue to look at marginal channels, and we are going to be prepared to drop those."

In what may have been a harbinger of this dispute, DirecTV in recent weeks added a small independent weather channel called WeatherNation right next to Weather Channel.

Adding to pressure on Weather Channel, the outlet isn't negotiating as part of a group of channels. While NBCU is a minority shareholder, it isn't involved in the negotiations.

Write to Suzanne Vranica at suzanne.vranica@wsj.com, Shalini Ramachandran at shalini.ramachandran@wsj.com and Christopher S. Stewart at christopher.stewart@wsj.com