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Viacom-Charter carriage renewal hinges on pricing, tiering issues, analysts say

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Viacom-Charter carriage renewal hinges on pricing, tiering issues, analysts say

With a deadline looming Oct. 15, Viacom Inc. and Charter Communications Inc. are facing a potential disconnect of the programmer’s 23 networks.

Negotiations continue as the parties come up against the expiration of their contract that covers Charter’s entire subscriber base, which now exceeds 16 million following its acquisition of Time Warner Cable Inc. and Bright House Networks LLC last year.

Pricing considerations aside, analysts believe issues around tiering are integral to the companies reaching a resolution. In May, Charter relocated key Viacom networks to a higher-priced package for new customers.

During the company's earnings call in August, Viacom President and CEO Bob Bakish said Charter didn't have the contractual rights to position the networks that way. Bakish noted at that time that he didn’t believe legal action is the means to solve problems, and that it is better to engage and explore ways to create value for both parties. "Ultimately, I don't see this getting resolved in terms of the tiering until we get to a new deal, and so this could take a little time," he said.

That time evidently is now. Tom Eagan, an analyst at Telsey Advisory Group, said in an interview that the tiering issue is "a big part of the negotiations" as Viacom wants "the restoration of its networks to a broader level of service."

Jefferies analyst John Janedis in a research note wrote: "We assume the sticking point for Viacom remains the re-tiering of its flagship networks and no resolution will be reached should Charter refuse to budge on the matter."

Viacom on Wednesday night began airing messaging on its networks running across the systems owned by Charter, warning subscribers that they could lose access to Nickelodeon/Nick At Nite (US), Nick Jr. (US), MTV (US), Comedy Central (US) and BET (US), among its portfolio. The programmer also urged subscribers to call Charter. Additionally, it launched KeepViacom.com, presenting various information surrounding the carriage situation.

Charter declined to comment.

Viacom has issued a statement saying in part that is has "made a series of very attractive offers to Charter that are consistent with terms we've recently reached with other large cable operators. Importantly, these offers would enable Charter to lower Spectrum subscribers' bills, while also giving them more access to shows across Nickelodeon, BET, MTV, Comedy Central and other Viacom networks. Despite our efforts, Charter continues to insist on unreasonable and extreme terms that are totally inconsistent with the market. While we're making every effort to reach a new deal, Charter’s actions may force a disruption in their service."

The Viacom-Charter dispute follows the Oct. 5 carriage renewal between the Walt Disney Co. and Optimum systems owned by Altice USA Inc. in the New York DMA. Both companies took public stances defending their economics and positioning, but ultimately averted any blackout of WABC-TV, ESPN (US), Disney Channel and other cable networks.

Viacom networks in August began returning to Suddenlink Communications systems as part of a renewed carriage deal reached with Altice USA in May. Viacom networks had been off of Suddenlink systems since 2014 after the parties could not reach a new contract. Altice bought Suddenlink in 2015.

The negotiations with Charter come as Viacom is looking to re-establish its bearings under Bakish, who has implemented a flagship strategy on the network side emphasizing and reallocating resources to six channels: Nickelodeon; Nick. Jr.; MTV; Comedy Central; BET; and male-targeted Spike (US), which will be re-branded as a general-entertainment Paramount Network, featuring more premium content, on Jan. 18. Viacom has been working toward improving domestic ad sales and indicated that MTV and BET have been scoring higher ratings. But audience levels could be compromised if the services were to go dark before Charter's Spectrum customers for any prolonged period.

Tesley's Eagan expects that the parties will reach a carriage fee deal covering the flagship six networks. However, the agreement could result with the other networks remaining on Charter systems, albeit sans subscriber fees. "There will be carriage and fees for the core six, but the other networks could run for free," he said.

Eagan said that under that model they could generate advertising revenue, but the big question is how they get compensated beyond that revenue stream.