With declining advertising rates and market share, Wall Street analysts are lowering their outlooks on Viacom on worries that the programmer will suffer the brunt of the cord-cutting trend due to its relatively young viewership and lack of sports programming. And it is exactly those issues that are sparking concerns that other MVPDs will join Suddenlink and Cable One in dropping Viacom's channel lineup altogether.
Investors are already wary of Viacom, which reported sluggish second quarter numbers, warning of declining ratings and advertising rates. In particular, the company's channels like MTV and Nickelodeon appear to be suffering from the departure of younger viewers from pay-TV to on-demand services like Netflix and Amazon. As a result, Viacom's stock has fallen from almost $70 per share in June to just $41 per share today.
Viacom's "core problem has been a sharp and steady decline and viewership that has been widely described as 'all structural,'" the analysts at MoffettNathanson wrote in a recent note to investors. "Given the fact that Viacom's cable networks are skewed toward demos which have seen the biggest declines in measured usage over the past 12 months, the 'structural' fears are relevant. However, compounding the issue, Viacom's networks have committed a cardinal sin by losing market share in a declining market."
Added MoffettNathanson: "The scope of Viacom share loss is startling."
Compounding investor concerns in Viacom is the possibility that other pay-TV operators will follow in the footsteps of Suddenlink and Cable One by dumping Viacom's programming in an effort to short up their own flagging finances.
Those worries have crystalized on whether Dish Network will renew its carriage deal with Viacom. The contract between the two companies is reportedly nearing an end, and Dish may choose to cut ties to Viacom's programming in an effort to reduce its content licensing costs.
"The Dish renewal is a very binary event. If Dish renews, [Viacom's] stock will go up. If Dish does not renew, [Viacom's] stock will go down (a lot)," said Bernstein Research analyst Todd Juenger in a report last week, according to MediaPost. Juenger said there's a 60-40 chance that Dish will renew its deal with Viacom.
Dish has close to 14 million pay-TV subscribers, which means Viacom will lose around $1 billion in revenues and $400 million in EBITDA in 2016 if Dish does dump the programmer, according to estimates from Trefis Research.
But at least one analyst firm believes that Dish and other MVPDs won't take the risk to drop Viacom.
"While we think Viacom's pricing power is less than what it once was, we think Viacom will continue to secure rate increases and annual escalators in MVPD contract renewals. Why? Viacom's networks still capture 11 percent of total national TV viewing, and have 13 percent share of industry affiliate revenue," said Deutsche Bank in a recent note to investors. "Further, we understand that Viacom accounts for an even higher percent of MVPD VOD viewing, which is logical given its younger audiences, making its percent of total viewing even higher. A look at Suddenlink's and Cable One's subscriber trends since they dropped Viacom suggests that any MVPD that is committed to the video business needs to think twice about dropping Viacom."
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