Analysts Weigh in on Viacom-DirecTV Carriage Dispute
One analyst calls the stand-off a "lose-lose" situation, while another one says it could be "a serious mistake" for any pay TV operator to not carry the Viacom channels.
Analysts late Tuesday started to weigh in on the networks carriage dispute between entertainment conglomerate Viacom and satellite TV giant DirecTV, predicting who would be hit harder by any fallout if the two sides don't reach an agreement quickly.
Most highlighted Viacom's broad viewership strength despite near-term ratings challenges at some flagship networks. But before Viacom channels, including MTV, Nickelodeon and Comedy Central, went dark in DirecTV homes at midnight ET, Evercore Partners analyst Alan Gould described the showdown as a lose-lose situation for the two companies.
"We estimate that DirecTV represents 12-13 percent of Viacom's domestic media affiliate and advertising revenue," he wrote in a report. "Viacom claims its programming represents 20 percent of the viewing on DirecTV, so we would assume DirecTV would lose some subscribers, particularly families that want Nickelodeon."
He estimated that Viacom generally receives about $3 per subscriber per month for its 17 channels, or 26 when including HD feeds. Given their just-ended carriage deal is seven years old, DirecTV likely pays less than $2.50 per subscriber per month, he added.
In his worst-case scenario, Viacom's channels would be off DirecTV for a full year. "We estimate the impact would be about $300 million after-tax to Viacom, or 63 cents per share, a 13 percent hit to our fiscal year 2013 [earnings] estimate," Gould said. "If the channels were off for a year, it would likely reduce Viacom's aggressive share repurchase plan."
Credit Suisse analyst Spencer Wang also warned that Viacom could be exposed to risk in the carriage showdown. Viacom draws a big audience, but doesn’t own a broadcast network, broadcast stations or a major sports asset, which peers like News Corp. can use for leverage during carriage and re-transmission consent talks, he argued.
Nomura's Michael Nathanson said though that Viacom should end up getting things its way, highlighting that of total live TV viewership, Viacom has eight channels in the top 30.
"We expect Viacom to ultimately receive affiliate fee step-ups of at least high single digits with DirecTV over the life of the deal, consistent with prior guidance," he said. "We do not believe Viacom is worried about the short-term quarterly impact, and although companies try to avoid public negotiations, we believe Viacom should be able to use this spotlight to prove its affiliate fee worth."
He entitled his report "Will DirecTV Make Dora Cry?" in a reference to Nickelodeon character Dora the Explorer, which the company showed crying during a carriage dispute with Time Warner Cable a few years ago. "Viacom ultimately largely received the increases they were seeking during the company’s Time Warner Cable affiliate fee negotiations on New Year’s Eve Dec. 31, 2008," Nathanson highlighted.
BTIG analyst Richard Greenfield also wondered if DirecTV CEO Mike White was risking too much with a stand-off with Viacom. "Will Mike White Make the Same Mistake as Charlie Ergen?" his report asked in reference to the Dish chairman who has been in various high-profile carriage battles.
"While Viacom’s ratings have definitely softened from where they were 12-18 months ago (MTV’s Jersey Shore highs along with Nick’s share loss to Disney Channel), we believe a multichannel video programming distributor would be making a serious mistake to not carry the Viacom suite of channels," Greenfield wrote. "While the demographics of Viacom’s cable network viewers may be the most exposed to finding Internet-based alternatives, the viewership of online programming is still dwarfed by the size and scale of Viacom’s content."