Echostar Communications Corp. on Tuesday dropped local CBS stations from its satellite service in 16 cities and dropped MTV, Nickelodeon and other cable channels nationwide after contract talks with Viacom Inc. broke down.
The impasse left an estimated 1.6 million people without CBS network television in cities like New York, Los Angeles and Miami the week before the CBS broadcast of the NCAA basketball tournament. It leaves another 9.5 million nationwide without 10 Viacom channels.
Viacom said it was “dismayed and disappointed” by the action.
EchoStar said it would like to transmit CBS programing on its network again, and accused Viacom of “holding the public airways hostage.”
Echostar shares were up 2.4% in early afternoon trading, while Viacom shares were down 0.9%.
Analysts said both sides have plenty to lose. Fee disputes between content owners and distributors have become commonplace, but usually they are resolved before customers lose service.
“Over the long term it’s not good for either side,” said John Hill, analyst at SoundView Technology Group.
Cablevision Systems pulled the Yes Network off its systems in 2002 in a fee dispute. Time Warner Cable pulled Walt Disney Co.-owned channels like ABC and ESPN from its systems in 2000.
Should the dispute drag on, Hill said, Viacom will take a hit to its earnings as it loses affiliate fees and advertising revenue for cable channels like MTV, VH1 and Showtime.
EchoStar is in an even more precarious position. Most subscribers to its DISH Network have other options for television service, such as their local cable provider and satellite TV competitor DirecTV.
“It’s certainly damaging to DISH’s subscriber roles and its ability to market in one-third of the country,” Hill said.
EchoStar said Viacom demanded exorbitant fee increases and space for new cable channels as a condition for retransmitting its CBS affiliates in local markets.
Viacom says its fee demands are reasonable, given its combined CBS affiliates and cable channels reach 20% of the American viewing public.
“They recently hiked their subscribers’ bills by as much as a month. Yet they are unwilling to consider paying an additional six cents a month per subscriber for the right to carry our channels,” Viacom said in a statement.
Viacom has completed deals with Comcast Corp., Cox Communications and DirecTV in the last six months and says it is asking for similar terms from EchoStar.
Analysts said if the dispute lasts more than a week, EchoStar could begin seeing defections to local cable TV service or to its larger satellite competitor, DirecTV.
“The question is how many subscribers are going to switch from EchoStar and go to cable and DirecTV to get their programing,” said Tom Watts, analyst at investment bank SG Cowen.
In a research note, Oppenheimer & Co. analyst Thomas Eagan said EchoStar defections could accelerate in major markets starting March 16, when CBS airs the NCAA basketball championship known as “March Madness.”
But Viacom will also take revenue hit if the dispute drags on. SoundView’s Hill estimates Viacom earns between $5 and $6 per EchoStar subscriber for its cable networks in affiliate fees and advertising revenue.
–Reuters
