Viacom and Charter in Preliminary Carriage Deal

By Keach Hagey Features Dow Jones Newswires

Media giant Viacom Inc. and cable operator Charter Communications Inc. have agreed to a preliminary deal that would put eight of Viacom's most important channels in the cheapest package available to the 16.6 million subscribers to Charter's Spectrum service, according to people familiar with the matter.

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Charter carried all 23 of Viacom's channels in its most affordable tier for years until a few months ago, when it began relegating those networks to a more expensive package for new subscribers.

Viacom, which suffered ratings declines of more than 20% over the past four years, agreed to take a lower rate from Charter than it had previously gotten, the people said.

The agreement is the second major carriage deal that Viacom has inked under Chief Executive Bob Bakish, who took the helm late last year. It reflects his strategy of focusing resources on six core brands -- Nickelodeon, MTV, Comedy Central, BET, Nick Jr., Paramount Channel -- at the expense of many low-rated channels like MTV Classic.

Under the preliminary deal, Charter would carry five of the six core brands in its cheapest package -- Nickelodeon, MTV, Comedy Central, BET and Paramount Channel -- as well as VH1, TV Land and CMT. Nick Jr. would be in its midprice package, and the rest of Viacom's channels would be on the most expensive tier, according to the people familiar with the matter.

The companies still must finalize the pact, without which Viacom's channels could go dark on Charter.

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Mr. Bakish has been working on a turnaround of Viacom, and has had some success with recent ratings improvements at channels like MTV.

The outlines of the deal were reported earlier by Reuters.

For many years Wall Street banked on media companies getting major fee increases in their carriage deals. But in the case of Viacom, the top concern was ensuring that channels remained available to the largest possible number of consumers. That is an indication of how cord-cutting and ratings declines have reduced the leverage of programmers such as Viacom.

Viacom had warned investors ahead of time that it was likely to get less money from Charter this time around. J.P. Morgan analyst Alexia Quadrani said she expected the fee that Viacom got from Charter to "move down to [Time Warner Cable] rates given the gap between historical Charter and TWC rates." Charter formally merged with Time Warner Cable last year, forming the second-largest cable company in the country. Large distributors typically pay less per subscriber to carry channels than smaller ones do.

During tense carriage-renewal negotiations that stretched past their Sunday deadline, Mr. Bakish warned Viacom's employees in a memo that Charter wanted to insert a clause that would make it impossible for Viacom to participate in an under-$20 entertainment-focused bundle of channels (without sports networks) that the company plans to launch soon with other nonfiction programmers such as Discovery Communications Inc. and A+E Networks.

"This is an ultimatum that's impossible to accommodate," he wrote.

In the end, this clause isn't part of the preliminary agreement, according to the people familiar with the matter.

Ms. Quadrani said J.P. Morgan views "this agreement very positively as it demonstrates the significant value of Viacom's portfolio of networks and should remove a large overhang on the stock as the company has no major contracts up for renegotiation in the next 12 to 18 months."

Write to Keach Hagey at keach.hagey@wsj.com

(END) Dow Jones Newswires

October 18, 2017 19:16 ET (23:16 GMT)