Shares of Viacom Inc. sank Wednesday, in the wake of the media company’s warning of a disruption of service for those accessing its TV networks through AT&T Inc.’s DirecTV satellite TV service, but DirecTV may actually have more to lose.
Viacom issued a warning on its website Tuesday, that despite “a series of offers” made to AT&T-DirecTV to reach a new carriage agreement, which expires March 22, AT&T’s “unwillingness to engage in constructive conversations” could force a disruption of service.
Viacom’s stock VIAB, -5.49% tumbled 5.5%, enough to pace the S&P 500 index’s SPX, -0.29% decliners. It has lost 7.1% this week, which would be the worst weekly performance so far this year.
Meanwhile, AT&T’s stock T, -0.55% slipped 0.6%, and has eased 0.5% this week.
“Unfortunately, AT&T is abusing its new market position by favoring its own content—which significantly underperforms Viacom’s—to stifle competition,” Viacom stated in a post to its website. “AT&T-DirecTV’s behavior is also consistent with a recent pattern of gouging their customers by charging them higher prices for an inferior product with fewer channels.”
AT&T completed the $49 billion acquisition of DirecTV in July 2015, about 14 months after the deal was originally announced.
Despite Wall Street’s reaction to Viacom’s warning, BTIG analyst Richard Greenfield said history suggests that DirecTV has more to lose if it drops Viacom’s networks, which include Nickelodeon, Comedy Central, BET and MTV.
Greenfield said that the last time DirecTV dropped Viacom networks in 2012, it lost subscribers and market share, as its competition began running ads aggressively targeting DirecTV subscribers.
In a July 2012 note published during the Viacom-DirecTV dispute, Greenfield pointed out that while both companies suffered, when Viacom channels get restored, business returns to normal, minus lost revenue during the dispute, but DirecTV subscriber’s lost to competitors don’t automatically return.
FactSet, MarketWatch
“Given DirecTV and DirecTV Now’s subscriber struggles, we fail to see the logic in AT&T risking further deterioration of its sub base by dropping the number one channel in kids 2-11 across all broadcast and cable networks (accounts for 45% of K2-11 viewing share),” Greenfield wrote in Wednesday’s note. “We wish them #goodluck explaining to subscribers paying industry-high monthly bills for video service why SpongeBob, Loud House, Paw Patrol and Peppa Pig have all disappeared.”
Greenfield said Viacom’s Nickelodeon has all of the top 12 TV shows for kids aged two to 11.
Although AT&T-DirecTV can work to reduce programming costs by dropping Viacom networks, the acceleration in subscription losses that it would likely cause appears “nonsensical” considering AT&T is trying to maximize free cash flow from DirecTV, which would be used to fund dividends paid to AT&T, Greenfield said.
