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“A combined company would have a better ability to negotiate carriage with large MVPDs and preserve affiliate fee and retransmission growth rates,” wrote Brett Harriss of Gabelli & Co. in a research note published Monday that he called: “Back together now!”
Harriss argues that Viacom faces carriage risk, in particular with Dish Network, which pays $3 for each of its 14 million subscribers for access to Viacom’s suite of cable channels, which includes Comedy Central, Nickelodeon, MTV and BET. CBS, on the other hand, has its far more popular flagship network and lots of sports rights, as well as premium cable network Showtime.
“The combined CBS-Viacom suite of networks would appeal to a much broader group of consumers, have more diverse programming and be tougher for MVPDs to drop,” Harriss wrote. “Without sports, Viacom in particular might be at a disadvantage in rate renewals.”
Harriss says that, while Verizon recently renewed Viacom channels for its 5.2 million subscribers, it doesn’t mean that Dish, run by chairman Charlie Ergen and CEO Joseph Clayton, will follow suit.
“Subscriber defections might be manageable such that dropping Viacom would be profitable for Dish,” Harriss wrote. “We think Ergen has the upper hand in upcoming negotiations…. He has the ability to unilaterally make decisions without concern for shareholder feedback or stock price fluctuations. He also has a history of making big and bold moves.”
Harriss says there are other synergies as well, including between CBS and Paramount. “It is no surprise that the largest, most successful TV studios are paired with film studios. Fox and Warner are perfect examples and lead the industry on profitability metrics,” he wrote.
Since the split, stock of both companies have done well, with CBS up 164 percent and Viacom up 90 percent while the S&P 500 has gained 57 percent in the same time frame.
Not addressed is who Harriss thinks should run the combined company should CBS rejoin Viacom.
“Genius and wisdom make a fantastic combination,” the analyst wrote. “CBS and Viacom chairman Sumner Redstone describes CBS’s CEO Les Moonves as a ‘super genius’ and Viacom’s CEO Philippe Dauman as ‘the wisest man I have ever known.’ While a challenge, we believe social concerns can be managed for the good of both companies.”
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