Why did DirecTV drop Newmax? A fee fight gets political

Disputes over these so-called “carriage fees” are fairly common. But in my two decades covering cable television, I have never seen anything that escalated like this. So I took a closer look at all the sides of the argument to assess what it says about the state of television, politics, and culture. The bottom line: DirecTV’s decision makes total business sense, but Newsmax’s emotional appeal trumps the other side’s cold hard math—and it still may force DirecTV to cut a deal.

Here’s how the math works. Cable, satellite, and streaming TV systems like YouTube TV sell bundles of channels – a model that was stupendously lucrative for the channel owners for decades but is now under extraordinary stress thanks to streaming powerhouses and other market forces. The bundle reflects, among other things, the cost of the channels wrapped up in it: High-rated channels like Fox News can earn several dollars per subscriber per month. Lower-rated channels settle for pennies, if that; some even pay the platforms for placement.

Generally speaking, the bigger your audience, the more you can charge; and conversely, the smaller your audience, the slimmer your odds of being able to command a fee. And Newsmax’s audience is small: The number of people watching at any given time, according to Nielsen, is about 100,000. More than 50 other cable channels outrank Newsmax, including conservative powerhouse Fox News, but also minor players like VH1, Lifetime Movie Network and Sundance TV.

And Newsmax’s big ask arrived at an awkward time for platforms like DirecTV. Over the years the monthly fees have risen so sharply that the entire bundle is at risk, as evidenced through year after year of reports about cord-cutting accelerating. I’ve seen it from both sides: When I was an anchor at CNN, a big chunk of my paycheck came from the monthly carriage fees charged by CNN’s owner, but whenever I paid my Comcast bill, I winced and wondered if I should cancel cable.

So it’s no wonder that DirecTV is trying mightily to contain costs. When the company announced layoffs in January, it basically blamed cord-cutting and carriage fees, saying “the entire pay-TV industry is impacted by the secular decline” in audiences and the increasing cost of programming, so “we’re adjusting our operations costs to align with these changes.”

Indeed, DirecTV changes its TV lineup all the time. Channels come and channels go. But Newsmax did not go quietly—because this is a make-or-break moment for the brand.

Christopher Ruddy, the gregarious CEO of Newsmax, has been building up the channel as a conservative alternative to Fox, and in 2020 he capitalized on the Trump base’s anger about Fox’s accurate reporting of the election. In short: Fox said Trump lost, a lot of Fox fans didn’t want to hear that, and some of them changed the channel to Newsmax, which refused to call Joe Biden the president-elect. Newsmax’s sudden ratings surge was a big story in the weeks between the election and the insurrection. The ratings quickly subsided, but Ruddy has continued to invest both in Newsmax’s programming, by adding TV veterans like Greta Van Susteren, and its operation. Now he is trying something audacious: demanding a carriage fee for a channel that he basically used to give away for free, even though the climate is far from hospitable and the audience he is delivering is relatively paltry.

From Ruddy’s point of view, he has earned it. When Newsmax TV was smaller, he had to pay some distributors to carry the channel. Later he streamed it for free so that he could build up an audience and sell ads. But now Newsmax has become a 24/7 backup to Fox with identifiable personalities like Sean Spicer and Greg Kelly – and theoretically that’s what gives Ruddy leverage. The channel says it “asked for a fee of about $1 per year per subscriber,” much lower than, say, CNN, which “gets $14 per subscriber from DirecTV.” (Newsmax and Ruddy did not respond to requests for comment for this article; quotes in this article come from recent public statements and interviews with other outlets.)

Carriage fees are usually treated like trade secrets, but if Newsmax’s math is right, its proposal was pretty modest. Then again, it amounts to $13 million a year for DirecTV at a time when the distributor is bleeding out. (The network, which is majority-owned by AT&T, doesn’t break out its financials. But Leichtman Research Group estimates that DirecTV lost 1.5 million subscribers in 2022.) So DirecTV said no, no, and no again. With Newsmax insisting on a fee and DirecTV refusing to pay, the distributor cut off the signal at midnight on Jan. 25. Ruddy immediately called it a “blatant act of political discrimination and censorship against Newsmax.”

DirectTV insists that Newsmax’s conservative stance has nothing to do with the dispute. “DirecTV remains interested in providing Newsmax — and wishes it had never left — as long as it doesn’t put an undue financial burden on our broad customer base,” a spokesman told me. But in a polarized political environment, that dollars-and-cents appeal isn’t what’s breaking through. 

‘Removed’ or ‘canceled’?

Allegations of censorship by tech and media companies are, of course, an animating force for the Republican party and have been for years. There is no faster way to gain attention and sympathy on the right than to say you’re being canceled. And in this case, Newsmax literally was, although DirecTV prefers the word “removed.”

Ruddy activated his GOP allies in the run-up to cancellation day. Together, they wrote a cancel-culture script that Newsmax hosts and fans repeated all across TV and social media. It began with a memo about the situation that Ruddy sent to House GOP members on Jan. 13; that was followed by  a letter that 42 Republican members of Congress, many of them regular guests on Newsmax, signed on Jan. 20. The letter said DirecTV “is moving to de-platform Newsmax,” a fact that was not publicly known at the time, and alleged that the distributor “is actively working to limit conservative viewpoints on its system.” The real message came at the end: a warning about looming investigations by Congress into censorship. These “will not be limited to social media companies,” the letter said. 

Another inkling of what was to come appeared on Breitbart, a favorite site of the Republican base. A Jan. 21 article was titled “Woke Wall Street Firm TPG Capital Contributes to DirecTV Censoring Conservatives.” This idea, too, became part of the cancel-culture script. TPG, which has long been associated with ESG and “impact” investing, took a 30% stake in DirecTV when AT&T spun off the distributor in 2021. The Breitbart story signaled that the private equity guys would share in the pain if Newsmax lost its prized channel position.

Newsmax lost it anyway, and Ruddy began using his media platforms to pressure DirecTV into reversing course. I have seen this in past fee fights – but never such a sustained effort to present corporate talking points under a news banner. It feels like the top story on Newsmax is about Newsmax: Its website has published more than 270 articles about the dispute in just six weeks’ time. Its television coverage is equally relentless, with upwards of 1,600 mentions of DirecTV on the channel since the day it was dropped, and 1,200 mentions of “censorship,” according to a search of transcripts using TVEyes.

The letter from dozens of Republicans linked DirecTV’s alleged anti-Newsmax attitude to an earlier letter, one penned in February 2021 by two House Democrats to a long list of media executives. The Democrats’ letter referenced the January 6 attack; said “misinformation on TV has led to our current polluted information environment;” and called out Fox, Newsmax, and One America News. The channels strongly pushed back and accused the lawmakers of viewpoint discrimination. When DirecTV subsequently dropped the conspiracy-laden One America in April 2022, a new conspiracy theory emerged, imagining collusion between liberal lawmakers and big business. The notion that a TV distributor would drop a channel because two Democrats dislike it seems far-fetched to say the least; DirecTV said it dropped OAN after a “routine internal review.” But when DirecTV refused to pay up for Newsmax, Ruddy portrayed it as a pattern of political foul play to an audience that was primed to agree, and now it’s part of the anti-DirecTV narrative.

‘Business all the way’

Among media execs, those political charges are met with derision. This is “business all the way,” media executive Tom Rogers, who founded CNBC and established MSNBC, told me. Rogers has been at the negotiating table across from the likes of DirecTV, and he says this case would have been cut and dry – were it not politicized and weaponized. Fox News, he said, is a “must-carry” channel because of its overwhelming popularity. Fox’s owner can charge $3 or more per month per subscriber, and distributors don’t dare remove it. Newsmax lacks that power.

The DirecTV dispute isn’t happening in a vacuum. Newsmax is trying to win fees from other big distributors that carry it, including Comcast and Charter. Failing to secure DirecTV could have cascading effects. Furthermore, Rogers pointed out that DirecTV was a particularly important source of eyeballs for Newsmax because “its constituency is red-state rural, and what’s left of a fast diminishing DirecTV footprint is red-state rural.” In other words, this battle is existential for Newsmax in a way that it’s not for DirecTV.

The varying reactions have left no doubt about that. In the weeks since cancellation day, Newsmax’s narrative has prevailed in the right-wing media and to some extent beyond. Searches for the name DirecTV on Twitter and Facebook show a torrent of responses from House Republicans and Newsmax hosts denouncing the distributor. The rhetoric keeps getting hotter: January’s House GOP letter dinged DirecTV for carrying “11 liberal news and information channels” but Ruddy now cites double as many, “22 liberal news channels.” (That larger list includes Comedy Central and the Weather Channel.)

DirecTV has mostly played it cool, with mild retorts to the other side’s over-the-top talk of discrimination and totalitarianism. One of the distributor’s main grievances is with Newsmax’s use – they say “abuse” – of its journalistic platforms to pursue its business interests. Newsmax “offers air time to those who sign letters” against DirecTV, a spokesman for the distributor alleged. 

Newsmax’s campaign has heavily featured its top talent, many of whom have posted TikTok-style videos on social media crusading on behalf of the company. What the channel hasn’t done is tout its actual news coverage. Newsmax has far fewer journalistic resources than CNN or Fox. When the U.S. military downed a suspected Chinese surveillance balloon on a Saturday afternoon in February, Fox’s wall-to-wall coverage included a live camera feed that captured the missile strike. Newsmax stuck with its regularly scheduled program, which was a repeat of a talk show from earlier in the week. Guess which channel had ten times as many viewers?

And that’s the real story here, beyond all the censorship cries. Newsmax simply doesn’t have a big enough audience to force DirecTV and other distributors to cough up cash. The rhetoric from dozens of Republican lawmakers would lead one to believe that Newsmax has millions of viewers at any given time, but the channel’s most popular shows struggle to hit 200,000 viewer, according to Nielsen. The cumulative audience of the course of a week or a month is certainly in the millions, but Fox remains exponentially more popular, and thereby un-cancelable. 

DirecTV CEO Bill Morrow has made these points to lawmakers like Sen. Ted Cruz in private phone calls. (Cruz still says he thinks this is a case of “corporate political bias.”) The mere fact that so many Republican elected officials have expended so much energy on behalf of a low-rated cable channel says something about the party’s priorities. More than a dozen lawmakers have talked about holding hearings on the matter. “I think it is a place that we should look at,” House Speaker Kevin McCarthy said in early February. Some members of his caucus say hearings are not enough: “We must actually do something,” Rep. Keith Self of Texas said a week later. “I don’t want to just have hearings. We need to take action as a Congress against this double standard.” Naturally, Self made the comments during an interview on Newsmax. 

Not all conservatives are on board with the pressure campaign. Some critics, including the Wall Street Journal editorial board, have charged the Republicans with engaging in coercion. Republican Rep. James Comer, the chair of the House Oversight Committee, said he has been in “constant communication with the leadership at AT&T and DirecTV” about the dispute and has urged them to “get this worked out or else” – prompting Democratic Rep. Jamie Raskin to accuse Comer of using his office to intimidate a private corporation.

Rogers said DirecTV “clearly showed this was not ideological by bringing on another conservative voice right away.” That would be The First TV, a streaming startup that features shows from Dana Loesch, Bill O’Reilly, and other right-wing talkers and was happy to be carried without any fee. Newsmax snapped back at its understudy with a press release saying “you can’t replace a Cadillac with a Honda.” But both can get you from A to B, and The First has enjoyed a viewership boost in the weeks it has been available on DirecTV. It may wind up being the only winner in the Newsmax-DirecTV dispute. 

Behind the drama, negotiations

All the political drama has disguised the fact that negotiations between the two sides are still taking place. “This ongoing business dispute comes down to economics on both sides, not politics or ideology,” a DirecTV spokesman told me. 

Newsmax initially urged viewers and readers to jam up DirecTV’s phone lines and threaten to cancel their subscriptions. (A source on the DirecTV side of the battle says the cancellations have been in line with the number expected in a temporary programming dispute.) But the channel’s messaging has recently softened, from “cancel” to “complain,” suggesting a more reasonable approach and perhaps a path toward a resolution. Speaking at the Conservative Political Action Conference on March 2, Ruddy said “we’re hopeful that we can come to some agreement.” Ruddy said DirecTV had softened its position “about two weeks ago,” the implication being that the GOP’s political pressure brought DirecTV back to the table. “That’s disingenuous,” a DirecTV executive told me, “as we’ve been negotiating for months and have always wanted to provide the network on the right financial terms.”

But even if the two sides settle, the tiff has deepened conservative convictions about corporate opponents. Trump, never one to dodge a dispute with the media, went after DirecTV’s part-owner AT&T at a recent event with supporters and blamed “radical left people” for DirecTV’s removal of both One America News and Newsmax. They “actually both got very good ratings,” he said. 

Trump was incorrect, but the crowd’s cheers confirmed that his argument isn’t factual, it is emotional. Conservative political junkies feel targeted. They feel like they’re being canceled. Newsmax is harnessing that emotion to extract million of dollars in carriage fees. Whether the channel is successful or not, the case shows that political polarization can shake up the unlikeliest corners of the business world.

Brian Stelter is the Walter Shorenstein Media and Democracy Fellow at Harvard Kennedy School’s Shorenstein Center on Media, Politics and Public Policy. He is a former anchor of CNN’s “Reliable Sources.”