Viacom on Thursday announced a new deal with Altice USA that covered carriages of Viacom’s cable networks and the use of Viacom’s Vantage advanced advertising technology to increase the value of both companies’ advertising inventory.
Viacom is trying to make a turnaround and one key question about the company is whether it will be able to grow its subscriber revenues. At a time when consumers are cutting the cord and distributors are winnowing out weak networks, Viacom appears vulnerable with no broadcast network or sports rights for leverage and a very long list of networks currently generating fees.
That vulnerability has been underscored by Charter’s recent decision to move some Viacom networks to more expensive tiers and by the willingness of most of the new virtual distributors—like Hulu and YouTube TV—to live without MTV, Comedy Central and the rest of the Viacom lineup.
To be sure, an agreement with Altice is good news, certainly to the extent that it reinstates Viacom networks on the Suddenlink systems, which dropped them in 2014. But, as with all deals with cable operators, the rest of the story is shrouded in mystery.
The deal announcement lists Viacom networks Nickelodeon, Comedy Central, MTV, BET Nick Jr., VH1, Spike (to be rebranded as the Paramount Network next year) TVLand and CMT. That’s more than new Viacom CEO’s flagship six, but not all. And the announcement does not say specifically where those networks will be available.
Alexia Quadrani said in a research note she expects “almost all except two very small networks (such as NIckMusic) will be added to Suddenlink. “Overall, we are encouraged by this week’s announcement and have greater confidence in the company’s longer-term affiliate fee outlook,” said Quadrani, who recommends investors “Overweight” Viacom stock in their portfolios.
Similarly, Jessica Reif Cohen of Bank of America Merrill Lynch asserts the new deal “provides incremental distribution and revenue for all Viacom networks—ex 2 small digital networks—across Suddenlink’s 1 million subscriber base.
“We believe the deal marks a significant positive for Viacom’s turnaround strategy, Cohen said.
John Janedis of Jeffries called the agreement “a much needed win” and rates Viacom stock a buy.
In a report, Janedis says he doesn’t think Viacom had to roll back rates in exchange for extended carriage—which means no change in his estimates for affiliate fee growth.
He assumes the framework of the deal won’t upset other Viacom’s other carriages agreements with most-favor-nation clauses, and that the agreement is likely for a term of about five years with annual rate increases in the mid-single-digit percentage range.
Janedis notes that reports that Charter was moving some Viacom networks onto higher-priced tiers—Viacom insists that’s only for new subscribers—had an outsized negative impact on Viacom stock.
While Viacom’s networks could be targeted for tiering by other MSOs, Janedis said Viacom reaching a deal with Altice—along with others management has said were also been renewed prior to expiration puts 15-20% of Viacom’s footprint in good shape into the 2020s, The deal going beyond carriage and including Viacom’s advanced advertising capabilities also is a positive in Janedis’ view.
But Todd Juenger, who rates Viacom stock at Underperform, had more questions about how much the deal would help Viacom.
“We don't know which networks (although that will be revealed over time, by the channel lineups), or how much Altice is paying (we'll never know the answer to that),” he said in a report.
The deal takes getting dropped by Altice off the table, and might indicate that Viacom will be able to maintain its carriage by other distributors, he said.
On the other hand it appears future of Viacom network distribution is only a handful of networks, instead of the current 25 networks.
This could lead to lower revenue. “We do not believe it's rational to believe Altice (or anyone else) will pay Viacom a higher total price for the handful of flagship networks, than they used to pay for all 25 Viacom networks (which included the flagships),” he said.
Earlier in the week, Bakish seemed upbeat about the affiliate situation. Speaking at an investment conference,
“We’ve done some inside-of-term deals where we added some on-demand product to again improve the pay-TV experience for these very large customers,” he said.
The before-expirations deals are part of Bakish’s aim to work more collaboratively with distribution partners.
“Since we were only doing deal pretty much when deals were up, and we have staggered long-term deals, we were getting to the place where our largest, most important customers had inferior rights grands from a Viacom perspective to smaller SVOD players,” Bakish said. “Now think about that for a second, that doesn’t make any sense. But that’s where we were.”
He said one big MVPD extended Viacom’s deal well into next decade.
“One of the things we’re focused on is broadening the relationships so it’s not just about kind of a brain-damaged zero sum game negotiation about costs for linear feeds and on demand product, but other ways to add value including bringing our industry leading Vantage data-driven TV product to local avails to add value there,” he said.
NOTE: This post was originally headlined “Analysts Have Questions About Viacom’s Deal with Altice USA” but has been updated after reports from additional analysts were received.