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Provider’s Dispute With Viacom Highlights Skirmish Over the Cable Bundle

Lobbyists asked Eric Rouse, a county commissioner in North Carolina, to help restore Viacom’s networks to local cable subscribers.Credit...Travis Dove for The New York Times

An email from a lobbyist landed in Eric Rouse‘s inbox one afternoon last December, catapulting Mr. Rouse, a commissioner of rural Lenoir County in North Carolina, into the middle of one of the fiercest battles being waged across the media business.

The lobbyist represented Viacom, the media conglomerate that is the parent of two dozen networks including MTV, Comedy Central and Nickelodeon. The local cable television provider, Suddenlink Communications, had dropped Viacom’s channels from its lineup in October after the two companies had failed to reach an agreement. Viacom wanted Suddenlink to pay significant increases; Suddenlink refused, citing deteriorating ratings at the networks.

“We’re eager to talk with you at your earliest convenience about how we might be able to help you reverse Suddenlink’s unpopular and unnecessary move,” read the email, which came from the government relations team at the Smith Anderson law firm in Raleigh. The message denounced the replacement channels that Suddenlink had added, calling them “inferior” and saying that it was “unfair” that the cable operator had not provided discounts to its customers.

Mr. Rouse certainly had noticed that Viacom’s channels no longer were available on Suddenlink, with his two school-age children missing their favorite shows on Nickelodeon.

But after talking with the lobbyist on the phone and further investigating the issue, he decided the government shouldn’t interfere. Suddenlink had made a business decision, he said, adding that customers had other options — online and satellite services — if they didn’t like what the cable operator offered.

“Nobody wants to pay more, but they want all the services,” said Mr. Rouse, one of seven county commissioners. “It is a balancing act.”

Finding that equilibrium seems as if it will take a while.

The drawn-out dispute between Viacom and Suddenlink — now in its sixth month — is a sign of the deep tensions erupting across the industry. Big television and cable companies occasionally engage in short but intense battles over contract negotiations that gain national attention, with some producing serious programming blackouts. Almost always, they are marked by bitter public relations campaigns aimed at convincing consumers that the other side is wrong.

The clash between Viacom and Suddenlink is the ground war taking place beneath those fireworks. Viacom has engaged local lobbyists, released an onslaught of ads and sent mascots like SpongeBob SquarePants to community events. Suddenlink’s chief executive has openly criticized its former business partner, and the company took out TV ads and made a public relations push to advance its argument.

“These negotiations usually are held in private,” said Amy Yong, a media analyst with the Macquarie Group. “It just goes to show you how important and how high-profile it has become.”

Much is at stake for both sides. The companies are trying not only to secure their positions but also profit in the rapidly changing television landscape, where new services allow viewers to drop traditional cable and satellite subscription for streaming and other à la carte options.

The fear for Viacom — and other major cable television network groups like Discovery Communications and Scripps Networks — is that larger cable and satellite companies could follow Suddenlink’s lead in dropping a company’s entire lineup of channels. Suddenlink is the seventh-largest cable operator in the United States with about 1.4 million customers in 16 states, including North Carolina, Texas and West Virginia. It is the latest in a string of smaller cable operators, including Cable One, that have dropped Viacom, a longtime anchor of the cable television bundle.

“The stage is set,” said Rich Greenfield, a media analyst with BTIG Research. “As consumers are less interested in large bundles, somebody is going to get hurt in the process by asking for too much.”

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Suddenlink, the nation’s seventh-largest cable provider, no longer carries any of Viacom’s networks, like Nickelodeon.Credit...Julie Denesha/Getty Images

The drama comes as Viacom is on uncertain ground. The total audience for its networks has tumbled about 20 percent quarter-to-date, according to Bernstein Research. The ratings issues have dragged down domestic advertising revenues. Viacom also is in the midst of layoffs as part of a broader reorganization of its business to position it for future growth.

Television groups have demanded significant rate increases from cable and satellite distributors in recent years. With their advertising businesses under pressure and the market for selling programs to streaming services more competitive, raising the so-called carriage fees they charge distributors is increasingly important to driving profits.

But cable providers, especially the smaller ones, are making a calculated bet, and some are refusing to pay up. Their profits increasingly are tied to selling broadband Internet service rather than video, and they are watching to see how many customers they will lose if they don’t offer the traditional bundle of cable networks. Unlike the video business, where customers can switch to satellite and other offerings, cable companies can have an advantage in the broadband arena, because there is less competition for selling Internet service in the markets where they operate, analysts said.

“You are going to see a lot of the smaller cable companies just drop video altogether,” Ms. Yong said.

Carl Folta, a Viacom spokesman, said that the dispute with Suddenlink was contained, and that the company was not in jeopardy of being dropped by the larger cable and satellite companies that represent the majority of subscribers. Viacom said about 70 percent of its subscriber base now was covered by deals extending to 2018 and beyond, and the company recently concluded carriage negotiations with Verizon and Frontier Communications.

Charlie Ergen, chairman of the satellite provider Dish Network, for example, said recently on an earnings call that he was “very hopeful we’ll continue with a long time with Viacom as we have for 20 years” if Dish and its customers are treated fairly.

Analysts said that cable companies were losing video subscribers after dropping Viacom channels, and that Suddenlink’s recent results were the latest example of how that decision is playing out. Viacom networks were removed from Suddenlink’s offerings on Oct. 1. During the following three-month period, the cable company lost a total of 32,600 video customers — about four times the 8,600 video customers it lost during the same period a year earlier.

Viacom points to the results as evidence that Suddenlink has suffered customer losses in the wake of dropping its networks. “To completely ignore the number that matters and say there has been no impact from dropping Viacom is simply not true,” Mr. Folta said. He noted that Viacom worked with local lobbyists on the Suddenlink effort for only a short period.

But most customers who dropped the video service because of the dispute with Viacom continued to pay for Internet and other services, with Suddenlink retaining 99.7 percent of its customer relationships, the company said. Net income for the quarter was $7.1 million, up 65 percent from the same period the previous year.

“The impact of this decision was limited, and the evidence to date suggests it’s rapidly fading into the background,” Jerald L. Kent, Suddenlink’s chief, said on a conference call. “Importantly, basic video trends continue to improve the farther we moved past the Viacom decision.”

Beyond the battle over pricing, the dispute between Viacom and Suddenlink underscores the growing divide between the entertainment offered by rural and urban cable companies. That gulf could grow even wider, some analysts said, should a series of proposed mega-mergers be approved, like Comcast’s $45 billion bid for Time Warner Cable that would unite the nation’s two largest operators. While big cable and satellite companies are able to use their negotiating strength to keep a lid on programming costs, smaller distributors won’t have that power and could be left to make much harder choices.

Allen M. Thomas, mayor of Greenville, N.C., where Suddenlink provides cable service, said that the dispute between the media companies was encouraging customers to abandon the traditional model.

“We’re really the losers either way,” Mr. Thomas said. “They capitulate on price, or you lose content. They are forcing citizens and the potential consumers to innovate and look for other sources of entertainment.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Betting Against the Cable Bundle. Order Reprints | Today’s Paper | Subscribe

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