Univision Suit Against Charter Over Carriage Licensing Fees

Univision Communications Inc. -- the largest TV broadcaster of Spanish language in the U.S. -- has sued the newly merged Charter Communications Inc. (NASDAQ:CHTR) over carriage licensing fees. Charter Communications merged with Time Warner Cable (TO:TWC) and Bright House LLC to become the second largest cable mult-service operator (MSO) in the U.S.

However, the parties are now at conflict about whether Time Warner’s long-term deal applies to the new merged entity or not. Notably, Time Warner had a long term agreement with Univision til Jun 2022 at a much lower carriage fees than the prevailing market rates. However, Univision contends that since Time Warner no longer exists, Charter must sign a new deal at the prevailing rates.

Rising Programming Costs

Increasing cost has been a recent trend in the pay TV industry and so the pay TV operators are trying to reduce such cost. In a market where pay TV operators are now challenged by online video streaming providers like Netflix Inc. (NASDAQ:NFLX) and Hulu.com rising operational costs is an undesirable trend. Moreover, telecom operators like Verizon Communications Inc. (NYSE:VZ) and other pay TV operators like DISH Networks Corp. (NASDAQ:DISH) are launching their own video streaming app which is adding to the woes of these pay TV players. Thus, ineffective management of such costs would mean transferring the same to the consumers, which may render them uncompetitive.

Charter-Time Warner Merger

One of the main purposes of the Charter-Time Warner merger was about reducing programming cost which would give rise to synergy. Moreover, by being a much larger player in the pay TV market, Charter is now well positioned with higher bargaining power during negotiations of agreements going forward. Since Time Warner had a deal with Univision at a lower cost, it is of no surprise that Charter’s intends to continue the running agreement which would help reduce some of its programming expenses.

What’s Next?

While Charter aims to run the original contract and has outright refused to enter into any carriage renewal agreement, we expect the ordeal to drag on for sometime. This may lead to blackout of Univision’s channel if the dispute is not resolved fast. While the two parties lock horns over the carriage licensing agreement, one thing is for sure, post the merger Charter is in for a rough start.

Charter Communications carries a Zacks Rank #2 (Buy).