Sony and Viacom Reach Tentative Internet TV Deal
Published: August 15, 2013

Viacom has tentatively agreed to let its popular cable channels — like Nickelodeon and MTV — be carried by an Internet TV service in the works at Sony, a deal that could signal the start of a new era of competition for entrenched cable and satellite providers.
Add to Portfolio

The agreement is believed to be the first of its kind between a major programmer and any of the technology giants that are trying to disrupt the traditional television model. Viacom and Sony declined to comment on Thursday, but a person directly involved in the negotiations confirmed a Wall Street Journal report about the agreement, which still must be wrapped up by the two companies.

Most households today have only a few choices for television service: whatever cable company serves their local area, be it Comcast, Time Warner Cable or others, and two satellite providers, DirecTV and Dish Network. (In some parts of the country, television through Verizon or AT&T is also available.)

Sony and rivals like Intel and Google want to change that, with a goal of selling a bundle of cable channels, the way Comcast and DirecTV do, via the Internet, and make the TV experience more convenient, the way Netflix does with personalization features and a fancy interface.

To do that, the upstarts need the permission of programmers, and that’s why the Viacom deal is a breakthrough. Viacom has more than 20 channels, including big ones like Comedy Central and small ones like Centric. Altogether the channels account for about 15 percent of American cable television viewing.

The person involved in the negotiations insisted on anonymity on Thursday because the companies were not prepared to comment on the record, but having the news spread was advantageous for Sony. Having Viacom on board — even just on a preliminary basis — will most likely help Sony complete other carriage deals. The company is known to be in negotiations with some of the other biggest programmers in the country, like the Walt Disney Company and Time Warner.

That Viacom was the first to agree to support Sony’s fledgling service isn’t necessarily surprising, since the company has a reputation for contentious relationships with cable and satellite companies. Last year, Viacom channels were blacked out in DirecTV households for nine days. Sumner Redstone controls both Viacom and the CBS Corporation, which is currently blacked out in three million Time Warner Cable households because of a contract dispute.

Sony has said almost nothing about its Internet TV intentions, but the company has been interested in selling channels through its PlayStation video game console for years. The PlayStation, with tens of millions of units hooked up to television sets worldwide, gives the company a distinct advantage over other new competitors. The Sony cable channel service could also be made available in the future via smartphones, tablet computers and other devices.

Sony hopes to start selling the service in the fourth quarter of 2013 or the first quarter of 2014, according to a media company executive briefed on the plans for it.

If Sony’s service (or another one like it) gets off the ground, incumbent cable companies like Comcast and Time Warner Cable are also likely to sell their own versions, furthering this new type of TV competition. Cox, a privately-held cable company, is already testing such an “over-the-top” service — so named because the programming rides over the top of existing broadband cables — in Southern California.

What no one knows — but everyone in the television industry wonders — is whether these Internet cable services would steal market share from incumbents; entice people who do not currently pay for any channel bundle to sign up; or fail to sign up customers at all.

Similar questions were asked when Verizon and AT&T started selling television nearly a decade ago. While those companies have taken market share away from cable and satellite, the overall number of American households paying for television has remained remarkably steady, even as companies like Netflix have provided new ways to consume TV.

A study released earlier this month by the Leichtman Research Group, which specializes in the media and entertainment industries, found that 86 percent of American households pay for some form of television, down from a historic peak of 88 percent in 2010.