The impasse, which could see Viacom networks go dark for 16.6 million customers of Charter’s Spectrum service follows a recent white-knuckler between Disney and Altice, which acquired Cablevision and now operates the Optimum cable service. Those parties had clashed over the impact of ESPN’s heavy spending on sports rights fees, which Altice said were driving unrealistic demands for increased carriage fees.
At issue with Charter and Viacom is the decision last spring by Charter to remove bedrock Viacom channels like MTV, Nickelodeon and Comedy Central from basic service on Spectrum and put them on a higher-priced tier. Along with that move, it rolled out a skinny bundle that features no sports -and no Viacom.
“They don’t have the contractual right to tier our services the way they have,” CEO Bob Bakish said in August about the shift. Still, “I don’t fundamentally believe suing big customers is the way to solve problems. The better way to solve them is through engagement and exploring ways we can create value together.”
On Tuesday, Viacom said it had 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.”
In the absence of a deal, Viacom this week has started to run ads on its networks alerting customers to a potential blackout. The company, under previous leadership, took notably aggressive stances in many carriage negotiations. Former CEO Philippe Dauman drove such a hard bargain that Viacom networks disappeared for two years from Suddenlink, a St. Louis-based cable operator now owned by Altice. While Suddenlink later restored Viacom networks in a larger pact arranged by Altice, the risk of brinksmanship is considerable for Viacom. Brett Harriss, an analyst with Gabelli & Co. estimates that Viacom could lose 16% of its overall affiliate revenue, some $760 million, if all 23 of its networks go dark.
In a research note today, Morgan Stanley’s Benjamin Swinburne argued that Viacom is in sound position even if it has to compromise to some degree in the talks. “Charter is in an increasingly competitive video market, and historically has bucked the skinny bundle trend by pushing more value to consumers. In fact, it continues to churn off its limited basic sub base and sell only a fuller expanded basic bundle.” That strategy benefits even networks like Viacom’s, which have seen ratings erode in recent years as viewers play the field.
Investors gave a vote of confidence in Viacom in Friday trading, with shares surging $1.58, or nearly 5%, to reach $34.03. Charter shares, which have had a rough week after AT&T issued a warning on video subscriber losses, rallied today and were up almost 2% late in the session at $357.55.
Charter declined Deadline’s request for comment on the situation.
The Stamford, Conn.-based company, one of whose major stakeholders and major behind-the-scenes strategists is cable pioneer John Malone, bought Time Warner Cable in 2016 after Comcast’s proposed offers hit regulatory roadblocks.