What To Make Of The Viacom-DISH Network Expiration

Unlike previously believed, the programming agreement between Viacom, Inc. VIAB and DISH Network Corp DISH expires Wednesday at midnight.

The Contract, According To Viacom

Analysts Weigh In

While Viacom's website states the deal is seven years old with an initial expiration date for January 2016, analysts at BTIG were under the impression that following an extension, the agreement wouldn't expire for some time to come. "[E]arlier today, we learned, literally out of nowhere, that the Dish/Viacom programming agreement expires at midnight. We and investors had believed the agreement, currently operating under an extension, did not expire until late Q2 2016," BTIG's Richard Greenfield said.

To complicate matters, DISH has announced it will be reporting quarterly earnings Wednesday, an unprecedented move for the company, according to BTIG. "DISH is usually one of the last companies to report earnings each quarter and in the past six years has reported Q1 earnings between May 2nd–11th," Greenfield elaborated.

"Viacom has done everything in its power to get a deal done," Viacom stated. "Our deal was initially set to expire this past January. In the interest of keeping Viacom's channels on the air, we offered multiple extensions with the hopes negotiations could continue. Throughout the process we have been deeply committed to getting a mutually beneficial deal done in a timely manner. DISH, on the other hand, has simply not engaged in a serious way to reach an agreement. This has unfortunately become DISH's way of doing business."

According to Viacom, the expiration of the Viacom-DISH deal means that 18 Viacom channels carried by DISH will no longer be accessible to DISH customers.

"DISH customers will be forced to suffer through more channel blackouts," Viacom said. "Yet again, DISH is threatening to drop the channels its customers watch and are paying for […] They will no longer get access to Viacom's most popular collection of media brands in the world."

BTIG's Greenfield commented on the situation, "While we recognize anything could happen tonight and predicting Charlie Ergen's strategic moves has historically been quite challenging, our gut leads us to believe DISH is reporting earnings far earlier than normal due to their Viacom extension expiring.

"Furthermore, if DISH was going to sign another extension with Viacom before midnight or aggressively work toward a deal in the days following a carriage drop (as typically happens when programming goes dark on a distributor), why host an investor call weeks earlier than normal with the call literally set to take place exactly 12 hours before Viacom programming is set to go dark on DISH?"

On the other hand, JPMorgan analysts led by Alexia Quadrani believe a resolution is likely. "We believe the deal is likely to get renewed," Quandrani began. "We believe Viacom is offering DISH rates comparable to its largest distributors, which implies ‘a reasonable' increase from current affiliate rates, given Viacom's channels account for ~15 percent of cable ratings, which we believe actually over-indexes in DISH's rural markets."

Quandrani elaborated, "Without a broadband business, we believe content provider renegotiations are essential to DISH's business, and the distributor also has had modest subscriber losses in recent quarters. Furthermore, Viacom's programming has trended more positively in recent months at Nickelodeon, VH1, and BET, with the kids network in particular benefitting from hit shows such as ‘Bubble Guppies,' ‘Paw Patrol,' and ‘Sponge Bob.'"

JPMorgan currently rates Viacom at Overweight.

DISH was recently seen up 1.70 percent at $48.12, while Viacom was down 1.94 percent at $34.95.

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