Viacom Stands to Lose More in Dish Fight, Analysts Say

“Dish would be OK without Viacom, but Viacom would not be OK without Dish,” Bernstein’s Todd Juenger says

Last Updated: April 21, 2016 @ 8:19 AM

After dueling for months behind closed doors, Viacom and Dish have brought their beef over fees out into the open, and popular channels like Comedy Central and MTV may disappear for nearly 14 million of the satellite provider’s customers as a result.

If the channels go dark, which company could be pay a steeper price than just the new fees? Both are taking on risks, but Viacom may face the harder fight toward recovery.

The two are battling over what’s known as carriage fees, the payments that a distributor like Dish makes to a programmer like Viacom for the right to carry its channels. Viacom’s networks include Nickelodeon, Comedy Central, VH1, MTV, BET, Spike, TV Land and CMT.

Every few years, a distributor and a programmer must hash out new terms for the fees before a current deal expires. The provider always wants to pay less, and the content company invariably wants more. Sometimes, when they can’t reach a deal before a current contract expires, channels “go dark” for the pay-TV provider’s customers.

The blackout can last until the two sides strike a new bargain — or it could be permanent.

In the case of Viacom and Dish, the two have been negotiating their deal since January outside the public eye. But unexpectedly on Tuesday, Viacom began warning Dish customers that they could lose its channels as soon as Wednesday night because of a breakdown in talks with the satellite provider.

Analysts are split on which company could come out the winner of a blackout, but most contend that Viacom is in the weaker position.

Todd Juenger, an analyst at Bernstein, painted a bleak picture. If Viacom is dropped by Dish, the company would be forced to make painful cost cuts while still suffering from a meaningful earnings decline. Dividend would likely be suspended, he said.

Best case: Shares would be worth about $24, compared with their $34 level now. Worst case: They could fall as low as $16, he calculated. The stock hasn’t touched levels that low since 2009.

“It’s certainly much easier for us to believe that Dish would be OK without Viacom, but Viacom would not be OK without Dish,” he said.

But an analyst who has been generally bullish about Viacom in the fight essentially made the case that the company has struggled so much that it doesn’t have much further to fall.

FBR’s Barton Crockett noted that with Viacom share value nearly halved in the last 12 months, the worst effects of the Dish dispute are already baked into its stock.

“Viacom’s stock will mainly benefit from getting the renewal talk over with, however it turns out,” he said.

He added it was unlikely Dish rivals would drop Viacom too, because carrying popular content that a competitor lacks could be leverage to poach Dish subscribers. Although he believes a renewal is likely, a permanent severance of ties could drum up pressure to sell or split up Viacom.

However, analysts at J.P. Morgan noted that Viacom’s ratings have trended positively in recent months at Nickelodeon, VH1 and BET. The fact that Dish doesn’t have an Internet offering as a side business like its cable competitors means content negotiations are essential.

BTIG’s Rich Greenfield said that this fight could have repercussions outside the ring where Dish and Viacom are duking it out. Dish CEO Charlie Ergen said earlier this year that the company isn’t likely to keep up its past practice of bringing back programming once it has blacked out. Should Dish drop Viacom and reiterate that programming they forsake is never coming back, “it could have a meaningfully negative impact on valuations throughout the media sector.”

Media companies “may need to start dealing with the reality that their programming is no longer worth what they are getting paid,” he said.

For its own part, Viacom said in a statement that Dish “has not engaged in a serious way” in talks to renew the deal to carry its networks. “This is par for the course for Dish, which has deliberately derailed ten renewal negotiations since last year by engaging in unproductive discussions and contentious public battles,” the company said. It added that it granted Dish multiple extensions and offered “best in class” terms in the pursuit of a deal, but the satellite provider made “impossible” demands. It said it showed a disregard for Dish customers and would drive them to competitors.

Dish said that Viacom “unilaterally elected to terminate an indefinite contract extension” Wednesday night for the carriage deal. “Viacom is asking for hundreds of millions of dollars in increases, despite the changing landscape that includes drastically reduced viewership of Viacom channels and wide availability of their content across multiple platforms, frustrating consumers who don’t want to pay twice for the same content,” the company said, adding it will “continue to negotiate in good faith.”