Viacom and Sony near deal for over-the-top service

Viacom Inc., parent of MTV, Nickelodeon and Comedy Central, is closing in on a deal with Sony Corp. to have its networks carried via an Internet distribution system the consumer electronics and entertainment company is developing that would potentially be a rival cable and satellite services, a person familiar with matter confirmed.

Should an agreement be struck, Viacom would be the first major entertainment company to agree to sell its content to a so-called over-the-top distribution system. Sony and Intel, which is launching its own over-the-top service, have been meeting with programmers for several months hoping to persuade them to take the plunge.

Programmers have been wary of committing to an over-the-top provider because it could alienate their biggest business partners — the satellite and cable companies that reach most American homes. This is why a Sony or Intel would likely have to pay a premium to get access to content for their services.

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The arrangement between Viacom and Sony will likely mirror the programming agreements it has with more traditional pay-TV providers, a person with knowledge of the talks said. Programmers don’t want to enter into contracts that give a new distributor freedoms that its longtime cable and satellite customers do not have. When a Viacom or a Walt Disney Co. sell to a DirecTV or Time Warner Cable, they bundle their popular and less popular channels together as opposed to letting distributors sell a la carte.

Cable operators — particularly Time Warner Cable — are concerned about having yet another competitor to deal with on top of the phone and satellite companies. They have become more aggressive in trying to craft contracts with programmers that would discourage a sale to an over-the-top service.

In its distribution fight with Time Warner Cable, CBS said that if it agreed to terms presented by the cable operator it would not be able to sell its channels to Intel for carriage. Time Warner Cable has denied that charge.

At the same time cable and satellite operators have tried to stymie over-the-top services, they have also been pushing for rights to distribute channels via the Internet themselves should that appear to be a viable business model.

It remains to be seen if consumers will embrace an over-the-top service if it is essentially the same as cable TV. Sony and Intel are betting that they can craft a more consumer friendly pay-TV menu that will woo consumers. Sony’s service would likely use its PlayStation gaming console as a conduit to programming.

Sony and Viacom spokespeople declined to comment on the talks, first reported by the Wall Street Journal.

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Follow Joe Flint on Twitter @JBFlint.