Analysts Say TWC Agreement Favors CBS


CBS and Time Warner Cable stayed mum on financial terms of the deal that ended the month-long blackout of CBS programming, but analysts believe that the broadcaster walked away a winner.

“Our gut tells us that this dispute favored content over distribution,” Wells Fargo analyst Marcy Ryvicker, who adds that “we hear that TWC moved a lot further than CBS” in order to reach an agreement.

Ryvicker believes CBS is getting similar rates and terms to what it agreed to with Verizon, which calls for sub fees that will reach $2 per month over time and incremental payments for digital rights.

The analyst also notes that she thinks that CBS will receive the new fees retroactively to when Time Warner Cable blacked out CBS’ stations last month. “We don’t think CBS’s COO [Joe] Ianniello would budge on this issue,” she wrote.

S&P Capital IQ analyst Tuna Amobi maintained his strong buy opinion on CBS stock following the agreement. “We see materially higher per-subscriber fees in a new multi-year pact, with some compromise resolution on digital rights,” Amobi wrote.

Amobi also kept his buy recommendation on Time Warner Cable. “We think this development will ease mounting regulatory pressures for both parties,” he said.

“This outcome was obvious from the start. There was no way TWC was going to not carry CBS,” wrote Todd Juenger, senior analysts at Sanford C. Bernstein.  “And it’s unlikely CBS gave in much on pricing. There’s no way CBS would have reduce their price demands just as their negotiating leverage was increasing.”

Juenger says that for CBS investors, the key question is when do retrans payments get to $2 per household for all subs.

He notes that CBS has indicated that retrans will approach $1 billion in 2016, which amounts to about $1.18 per sub. Juenger estimates CBS gets to $2 per sub in 2023-24, which means that retrans would rise 7% annually from 2016 to 2023. He says more bullish analysts expect CBS to hit $2 by 2020, which would represent a 13% annual increase.

Following the Time Warner Cable agreement, “we don’t believe even the biggest bulls will accelerate their expectation of reaching an overall average of $2 per households,” Juenger says in a research note.  “Certainly it is not logical that anything that transpired during the dispute would have increased retrans above what bulls were expecting pre-deal. So, we don’t believe the resolution of this dispute increases the upside scenario. It may legitimately increase confidence it will be achieved.”