Shares of Viacom rose at their highest rate in nearly a year after the media company struck a deal to allow AT&T to continue carrying its cable networks, avoiding a threatened service interruption to 24 million consumers that would have hurt both companies.
As of 2:30 p.m. New York Time, Viacom changed hands at $26.85, up 6 percent. Earlier, the stock reached a high of $27.36. Shares of the New York-based owner of BET, Comedy Central, and Nickelodeon, have gained 5 percent since the start of the year.
Investors were concerned that the telecom giant would get the better of Viacom in their talks to set the fees that AT&T will pay Viacom to carry the media company’s channels where viewership has fallen in recent years. As a result, Viacom's share price fell nearly 10 percent in the week leading up to the March 22 expiration of its contract with AT&T.
The testy public statements that AT&T and Viacom exchanged last week further exacerbated investors' anxieties. However, negotiations between AT&T and Viacom continued after the contract expired without any service interruptions to customers of AT&T’s DirecTV satellite TV and U-Verse services and its DirecTV Now “skinny bundle” of channels geared towards "cord-cutters."
According to a joint statement from Viacom and AT&T issued at 4:39 a.m. New York Time on Monday, the companies reached an agreement that will help them both and benefit consumers.
"The deal also brings AT&T customers more choice an improved value for Viacom content," the companies said in a statement.
Viacom and AT&T will announce further details about the agreement "in the near future," according to the statement. They declined to offer an immediate comment beyond the statement.
Both companies were both eager to avert a service interruption.
The telecom giant would have been faced customer defections if Viacom’s channels went dark at a time when competition for Pay TV customers is intensifying. AT&T also needs as many distribution partners as it can get to pay down its more than $170 billion in debt stemming from its $67.1 billion acquisition of DirecTV in 2015 and last year’s $85.4 billion purchase of Time Warner. Indeed, AT&T executives have indicated that the company is looking to cut costs
AT&T will face similar challenges it faced with Viacom when it negotiates deals to carry the programming of CBS and Walt Disney on DirecTV that are set to expire in the coming months, according to Variety. The company also is eager to stem customer losses.
More than 1 million subscribers dropped DirecTV in 2018 thanks to the rise of cord-cutters and increased competition. Interest in DirecTV Now also is starting to wane. Meanwhile, the future of U-Verse remains unclear.
Viacom also had plenty to lose if it wasn't able to come to terms with AT&T. According to Bernstein & Co. Analyst Todd Juenger, DirecTV pays the media company about $1 billion in fees annually.
Viacom is expected to join forces with its former corporate sibling CBS to gain an edge in contract negotiations like that AT&T deal. The road to this corporate marriage. however, has been a rocky one.
Former CBS CEO Les Moonves filed to suit last year to block a Viacom-CBS merger that was backed by Shari Redstone of National Amusements Inc., the controlling shareholder of both Viacom and CBS. As part of the settlement of that case, Redstone agreed not to raise the possibility of a Viacom-CBS merger for at least two years. Wall Street analysts, though, are expecting a merger to occur sometime this year given the rapid pace of consolidation in the media sector.
Disputes over fees between companies that create and distribute content are becoming increasingly testy.
Subscribers to DirecTV’s main rival Dish Network haven’t had access to HBO and Spanish language network Univision for months after the satellite provider failed to come to term on new distribution agreements. As a result, nearly 1 million net customers dropped Dish last year.
HBO is part of AT&T’s WarnerMedia business it acquired last year in its $85.4 billion acquisition of Time Warner. More people are expected to drop Dish when the new season of Game of Thrones starts on HBO in April.
(Post has been updated to clarify details of a potential CBS-Viacom merger.)
