Cable companies are competing against the disruptive technology of streaming content both for customers and for content. This has made for nasty relations between content providers and the companies that deliver this content to consumers. There have been many lawsuits over pricing strategies recently based on the desperation of cable companies.
However, as investors we should be willing to embrace companies in terrible industries such as cable if their stocks are trading at incredibly cheap valuations. We should also be willing to buy the stocks of content providers if their stocks are reasonably priced.
Legal battles
DISH Network Corp. (NASDAQ:DISH) has lost three out of four claims which it brought against The Walt Disney Company’s (NYSE:DIS) ESPN regarding the terms of a sports programming contract, as a panel of judges awarded Dish only $4.85 million of the $153 million it wanted. In 2009, the company sued ESPN for violating the nation clause in their distribution agreement, according to which it requires the ESPN to offer the company the similar terms it offers competitors.
After the verdict, Stanton Dodge, the general counsel of DISH Network Corp. (NASDAQ:DISH) said that the company would remain vigilant in its efforts to make sure that programmers respect their contractual commitments to provide best programming at the best price to its customers. According to Barry Ostrager, a lawyer of Dish, “ESPN promised Dish that no other distributor had better rate terms or packaging terms than DISH Network Corp. (NASDAQ:DISH) was receiving under the contract.” He also said that ESP made a calculative decision of not offering the similar terms to Dish. The company said that ESPN offered Comcast Corporation (NASDAQ: CMCSA) the right to distribute the ESPN Classic, a sports channel as element of a less-watched series of channels resulting in lower payments. It also said that ESPN allowed Verizon Communications Inc. (NYSE:VZ), Time Warner Cable Inc (NYSE: TWC) and DIRECTV (NASDAQ:DTV) to pay lower rates for ESPN Deportes, a Spanish-language channel. Comcast was also given at better terms the right to distribute, ESPNU, a college-sports network to bars and taverns. It also that ESPN breached the contract as it did not charge an additional subscription fee for providing the right to distribute its programming over the Internet to Time Warner Cable.
This verdict was announced in the same week that Cablevision Systems Corporation (NYSE:CVC) filed an antitrust lawsuit against Viacom, Inc. (NASDAQ:VIAB) in the federal court. Various media companies such as News Corp (NASDAQ:NWSA)., Viacom and Time Warner Cable have bundled networks together to promote new programming promotion and to increase revenue. This pricing strategy is seen by some as a violation of antitrust laws while other parties view bundling as a kind of volume discount.
An antitrust lawsuit was filed Viacom by Cablevision Systems in February 2013, as a bid to turn over the television industry by challenging the bundling of cable networks, this led an increase in cable bills and ballooning channel lineups. Cablevision is attempting to utilize the antitrust law to compel the unbundling of networks, a step which is promoted by the consumer and trade groups to reduce increasing cable bills. According to Paul Sweeney, an analyst at Bloomberg Industries, Pay-TV companies are finding it complex to transfer higher programming costs, as viewers have various video options on the Web. Sweeney also said, “This has been the business model for decades, and that’s OK when the pay-TV universe expands every year, but now we’re in a saturated business. If you’re a distributor, and you’re not getting any more subscribers by taking MTV 7, you’re asking, ‘Why am I paying for this?”
According to Cablevision, Viacom forced it to carry and pay for 14 lesser-watched secondary networks and tied them to have certain necessary networks such as Nickelodeon, MTV and Comedy Central. According to Comcast and DirecTV, the industry’s programming rates are expected to increase at least 10% during 2013. Viacom’s networks has reached to approximately 100 million US viewers, who pay for the channels as they sign up for cable, which made it one of the biggest providers of content. In December 2012, Cablevision entered into a programming agreement with Viacom. According to Cablevision, the suit is filed to make that deal to void and allow the Bethpage, to continue airing of Viacom shows where the two sides are negotiating for new terms. The antitrust argument by Cablevision may focus on displaying that Viacom is performing as a monopolist and using that influence to unfairly putting a pressure to purchase the lesser-watched channels.
