Analyst: Charter Dispute Puts $1.4B at Risk for Viacom

Stock drops in morning trading
Publish date:
Updated on

Viacom is warning viewers that its cable networks could be dropped by Charter Communication when it distribution agreement expires on Oct. 15, and on Wall Street, one analyst estimates that a permanent blackout could cost Viacom $1.4 billion in revenues.

Related: Viacom Warns Viewers of Possible Charter Carriage Impasse

In a research note Thursday Omar Sheikh of Credit Suisse said the dispute puts $800 million in affiliate revenue and $600 million in ad revenue at risk. Needless to say, the possibility of a blackout will create what Shiekh called “significant near-term weakness” in Viacom’s stock price.

Viacom shares were down more than 6% to %23.56 in Thursday morning trading. They’d fallen sharply Monday after an analyst warned that trouble with Charter was on the horizon for Viacom.

Related: Viacom Shares Fall on Analyst Report

Losing about 40% of its cash flow will have a big impact on Viacom, which is trying to rebound from declining ratings and ad revenues under new CEO Bob Bakish. Without major sports franchises, or a broadcast network's retransmission rights, Viacom doesnt appear to have much leverage with distributors.

“If Charter is permanently dropped from Charter and others follow, the turnaround strategy under its new CEO will obviously be called into question,” Sheikh said. “In that event, a more radical restructuring of the company, including its programming cost base, will likely be necessary. It is also likely that controlling shareholder National Amusements will look to revisit a combination with CBS, which would offer cost synergies and shore up VIAB's negotiating power with distributors.”

Shiekh bases his economic assumptions on Charter, with 16.5 million subscribers, paying $3.82 a month for Viacom’s networks. Charter also represents 17% of Viacom’s U.S. coverage and that share of its ad revenue.