How do you know when a reasonable deal is reached? When neither party jumps up and down in celebration, yet both parties are satisfied. Another measure is the reaction of the stock market to the news. This is exactly the situation with Viacom (VIAB) and DirecTV (DTV). The two parties have reportedly inked a deal that returns several programs to the satellite television service and should promise no more sticky contract situations between the parties for at least 7 years.
Over the past month Viacom and DirecTV have been in a very heated and public spat over programming and fees. Consumers, like children in a custody battle, were the big loser, as popular channels and shows (such as MTV and Nickelodeon) were pulled from DirecTV while the parties negotiated.
It had been rumored that Viacom was seeking a 30% raise from the previous contract. In the end it is being reported that Viacom will see a 20% raise in a deal worth some $600 million per year. While not the 10% that DirecTV would likely have wanted, it also is not the 30% sought by Viacom.
The issue of content and its value has been a hot topic of late. DirecTV competitor DISH Network (DISH) has been in a heated dispute of its own with AMC, a popular channel that runs movies and exclusive series such as the popular Breaking Bad.
One dynamic that exists is the advent of more and more consumers turning to the web for content. Owners of content have the ability to make content available direct to the consumer, something that makes the content less exclusive, and therefore less valuable to a distribution company like DirecTV. Streaming and mobile rights have become an integral part of contract negotiations. Distribution companies want at least the right to have first run, and typically want to keep content as exclusive as possible. The solution that has been utilized and worked, at least for the most part, has been direct distribution is held off for weeks or even months. This gives the live show more value.
With the Viacom and DirecTV contract now resolved, the business of both companies can return to normal with the focus on delivering value to consumers as well as stockholders. Viacom can celebrate a bigger contract and DirecTV can celebrate a reasonable deal that will not need more negotiation until 2019.
Viacom currently trades at about $11 higher than the 52 week low and just $5 away from a 52 week high. Does this new deal make Viacom a buy? Not quite yet, but the fundamental story of Viacom should remain stable.
DirecTV is trading about $8 above 52 week lows and just $4 from the highs during the same period. Unlike Viacom though, there are many bullish technical indicators that favor a DirecTV run. If I was choosing between an investment in one of these companies it would be DirecTV. The company will certainly make the most of advertising its new deal directly to consumers, and subscribership can return to normal now that the programming package is returned.