Photographer: Peter Kramer/Getty Images

Viacom Falls After Being Forced Onto Pricey Charter Tier

  • Channels MTV, VH1, Spike relegated to most expensive package
  • Media stocks tumble on renewed fears about advertising sales

Viacom Inc. plunged after Chief Executive Officer Bob Bakish acknowledged that some of the media company’s most popular channels have been relegated to a higher-priced tier of service on Charter Communications Inc.

New Charter subscribers can now only get Nickelodeon, MTV, VH1, Spike, BET and Comedy Central if they pay for the most expensive cable package, which could reduce Viacom’s viewership and fees from cable and satellite distributors -- two critical sources of revenue.

Class B shares of the New York-based company fell 5.7 percent to $37.03 at 10:48 a.m. in New York, after dropping to as low as $35.20 either. Media stocks also slumped across the board on renewed concern about online competition and declining ad sales.

Cable and satellite-TV providers just suffered their worst first quarter of subscriber losses in history, and are testing packages with fewer channels at lower costs to keep customers. That endangers entertainment programmers like Viacom, which doesn’t carry sports in the U.S. and has struggled to develop TV content that distributors feel that they can’t live without. Viacom isn’t part of YouTube’s live TV service or Hulu’s upcoming package, and saw its channels dropped from Sony Corp.’s PlayStation Vue last November.

Bakish, for his part, has prioritized rehabilitating its relationship with distributors since taking over as CEO, replacing long-time distribution chief Denise Denson with Tom Gorke. And the company is actively renegotiating new agreements prior to the expiration of current deals.

“It’s not a broader re-tiering,” Bakish said of the situation involving Charter, one of the largest pay-TV providers in the U.S. It will only involve new Charter customers, he said. “We have a strong point of view and are in conversations. We believe this will get resolved.”

One way Bakish is trying to fight the squeeze from distributors is by creating new online TV services for consumers who don’t want to pay for sports.

Viacom, joined by cable programmers including Discovery Communications Inc. and AMC Networks Inc., have explored offering entertainment-only packages over the internet with four to six pay-TV providers, Bloomberg reported last month. A sports-free TV package would cost less than $20 a month, compared with about $40 for Hulu’s live-TV service and $35 for YouTube’s.

“We do believe there are opportunities to create these skinnier bundles,” Bakish said. “And we’re in very deep conversation with one particular entity right now about exactly that. And we do believe that, as we get a breakthrough here, that will be a catalyst for more.”

Investors have become anxious again about a media industry marked by a loss of subscribers to conventional cable and satellite services, fierce competition from digital outlets and falling advertising revenue. Viacom joined Time Warner Inc. and AMC Networks Inc. in reporting a drop in ad revenue in the most recent quarter, sending shares of Walt Disney Co., 21st Century Fox Inc., CBS Corp., Viacom Inc. and Discovery Communications Inc. tumbling for a second day.

For Viacom, the selloff overshadowed a quarter in which the owner of Paramount Pictures and Nickelodeon reported better-than-expected fiscal second-quarter results, buoyed by box-office results from “XXX: The Return of Xander Cage’’ and the sale of several TV shows.

Sales rose 8 percent to $3.26 billion in the quarter ended March 31, Viacom said Thursday in a statement, exceeding analysts’ estimates of $3.03 billion. Profit excluding some items totaled 79 cents and beat analysts’ forecasts of 60 cents.

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