Analyst: Loyalty Data Shows Leverage for TV Network Owners in Carriage Disputes

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After the Viacom-DirecTV spat, Barton Crockett says if carriage fees were split according to loyalty, Disney would face a decline, while others would benefit.

Lazard Capital Markets analyst Barton Crockett said Monday that a new survey measuring TV network loyalty shows that content owners have leverage over pay TV operators in carriage disputes.

Following the recent high-profile DirecTV-Viacom carriage showdown, Crockett in a report detailed results from a survey that Lazard conducted with Clear Voice Research.

"The index, based on a survey of over 2,240 adults, measures willingness to cancel or switch pay TV services if a favored network is dropped," he explained. "We see it as supportive of our belief that TV network owners can continue to extract high-single-digit program fee increases from traditional pay TV services."

The index found that 38 percent to 43 percent of consumers would cancel or switch their pay TV service if they lost top broadcast networks. More than a third would cancel if they lost ESPN, the top cable channel in terms of viewer loyalty. And 29 percent would cancel if they lost the second-ranked cable network, Discovery.

Despite recent ratings challenges, Viacom reached an average cancel rate of 15 percent, led by its Comedy Central (20 percent) and Nickelodeon (19 percent).

Crockett argued, though, that the index "highlights share shift potential for program fees." For example, Disney's networks rank among the highest in terms of loyalty, but its share of program fees more than reflects that, he said. "By our calculation, if the program-fee pie were split according to loyalty share, Disney's fees could drop in half, while CBS' fees could grow nearly fivefold, and Discovery's could more than double."

Overall, he predicted continued carriage-fee increases for network owners. "The recent Viacom-DirecTV settlement argues that distributors will typically accept margin erosion rather than risk losing subscribers by dropping popular networks," Crockett said. "We believe that high-single-digit program-fee growth can continue for over a decade before return on invested capital by cable and satellite TV services drops to levels that could prompt a slowdown in fee growth."

Twitter: @georgszalai