Viacom Inc`s bitter contract renewal talks with AT&T Inc`s DirecTV that could see the blackout of MTV, Nickelodeon and Comedy Central by midnight Friday are weighing on a possible tie-up of CBS and Viacom, sources familiar with the discussions said.
Although the boards of CBS and Viacom have not discussed or decided on pursuing a merger, these sources say they are studying AT&T`s impact on Viacom and how it affects the company`s motivation to pursue a CBS merger. Viacom needs to resolve the AT&T contract before considering any other strategic moves including mergers and acquisitions, sources said.
Both companies are controlled by the Redstone family’s National Amusements Inc, which pushed for a merger last year but backed off as CBS explores other options before deciding on another run at Viacom.
Viacom would take a substantial financial hit without an AT&T deal. AT&T is Viacom’s largest distributor, representing 24.5 million total video subscribers, and was responsible for about 15 percent of Viacom’s 2018 revenue. At stake are about $2 billion annually in fees and advertising, which are seen declining in any new deal, according to Wall Street estimates.
The 2017 Viacom and Charter Communications Inc renewal resulted in a 15 percent rate decrease. A similar outcome with AT&T could lead to a $156 million drop in annual affiliate fees paid by AT&T to Viacom, although some analysts have estimated an approximate 10 percent decrease this time.
Viacom and AT&T declined to comment. Negotiations continued as of Friday afternoon, sources said.
Failure to reach a deal is seen emboldening CBS and Viacom`s controlling shareholder`s position to put the companies together to give them better leverage in future distribution contract talks.
"Viacom’s clear need for greater negotiating leverage after being dropped by AT&T might be the final factor necessary to drive the long-speculated CBS-Viacom merger given the common control of both companies by the Redstone-controlled National Amusements," Credit Suisse analyst Doug Mitchelson said in a research note this week.
If AT&T and Viacom walk away from the table, the No. 2 U.S. telecoms company`s position could also be weakened, especially if it faces a combined CBS and Viacom by the end of June, when CBS`s contract with AT&T expires.
Dropping the CBS broadcast network and NFL games would be disastrous to AT&T, and they may end up paying more for Viacom channels through CBS, analysts have said.
Losing Viacom will also weaken AT&T`s leverage as it faces Walt Disney Co later this year, according to Mitchelson.
Shares of Viacom closed down 2.46 percent at $25.34 on Friday while AT&T shares closed flat at $31.07.
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)
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