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Analysts: Both sides have plenty to lose in DIRECTV-Viacom carriage dispute

A high-stakes network carriage battle between AT&T Inc.'s DIRECTV and Viacom Inc. could bruise both parties, analysts warned, as the companies traded jabs in the days leading up to a midnight March 22 deadline to strike a new deal.

In the absence of a new agreement, Viacom's suite of 23 networks, including Nickelodeon/Nick At Nite (US), MTV (US), Comedy Central (US) and BET (US) could go dark on AT&T Inc.'s primary satellite service DIRECTV, telco TV offering U-Verse, and streaming service AT&T Watch. A carriage disruption — which would come on the heels of a quarter during which AT&T sustained subscriber losses and Viacom is focused on shoring up its affiliate footing — would not be beneficial to either side, analysts said.

Patrice Cucinello, director at Fitch Ratings, wrote in a March 20 note that Viacom's strategy of concentrating on flagship brands has reinvigorated ratings and viewership at MTV, Comedy Central and BET, but Nickelodeon and Paramount Network (US) continue to struggle.

"We remain concern about trajectory and brand relevancy in light of continued media fragmentation," Cucinello said. "Viacom's ability to successfully renegotiate its carriage agreement is critical to the health of its affiliate revenues and cable networks business."

BTIG Research analyst Rich Greenfield recalled that a 2012 multiweek blackout of Viacom's networks on DIRECTV resulted in competitors picking off a number of the distributor's subscribers. AT&T acquired DIRECTV in 2015.

In a March 20 note, Greenfield wrote that it is difficult to see how a carriage disruption would serve either Viacom or AT&T's DIRECTV. He said that while Nickelodeon has lost overall ratings in recent years, its lead in the kids category has widened, and the service remains a key part of video bundles. Greenfield said losing MTV, Comedy Central and BET would create real headwinds for AT&T/DIRECTV.

While AT&T would reduce programming costs without the Viacom portfolio, "the acceleration in subscriber losses that it would cause appear nonsensical if they are trying to maximize free cash flow from DiIRECTV to fund dividends at AT&T," Greenfield wrote.

"We suspect a deal will be reached relatively quickly even if a drop occurs, and would not be surprised to see the two sides reach an agreement in principle before this weekend to avoid a drop and then work out the details in the weeks ahead," the analyst said.

In the meantime, both sides are pointing fingers at each other.

"We're disappointed to see Viacom put our customers in the middle of their negotiations," AT&T said in a statement. "We ... want to keep Viacom's channels in our customers' lineups. We hope to avoid any interruption."

However, AT&T also said several of the programmer's channels are no longer popular.

For its part, Viacom has screened ads on its networks warning viewers that DIRECTV and U-verse may soon lose the channels and launched a website, keepviacom.com, that encourages DIRECTV customers to contact the pay TV company about reaching a new agreement.

Like DISH Network Corp. and other AT&T rivals, Viacom is blaming the dispute in part on the makeup of the newly constituted AT&T, which not only houses the various distribution platforms but the WarnerMedia portfolio of assets.

"AT&T is abusing its new market position by favoring its own content — which significantly underperforms Viacom's — to stifle competition," Viacom said in a statement.

While the DIRECTV NOW PLUS and MAX packages, announced March 12, include access to WarnerMedia's premium service HBO (US), new customers lack access to networks from Viacom, as well as A+E Networks, AMC Networks Inc., Discovery Inc. and Entertainment Studios Inc.