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It looks like AMC Networks (Nasdaq: AMCX ) is getting a bit aggressive, like its Breaking Bad leading man, Walter White. It started out so well intentioned, but now that the media company has some critically acclaimed programing under its belt, it's starting to throw its weight around. Some might say that AMC's becoming a bit of a bully, but it may just be doing what it needs to in order to protect itself.
A little over a month ago, Dish Network (Nasdaq: DISH ) customers got their walkers, dealers, and ad men back after fee negotiations soured and Dish blacked out the AMC channels during the summer months. Now, AMC is warning Verizon's (NYSE: VZ ) Fios customers that their cable provider is posing an imminent threat, and that they may lose their favorite programs soon.
The channel blackout from the Dish/AMC fight was really only a single episode from a much larger series of issues the two companies and AMC's former parent, Cablevision (NYSE: CVC ) , were tussling over. In contrast, the imminent threat to Fios customers is a result solely of contract negotiations between Verizon and AMC. When the current contract was signed in 2006, AMC was not the original series powerhouse it is today, so the company is pushing for larger fees in order to continue providing content to Verizon.
And here's where the plot thickens: Verizon has stated that it's willing to work with AMC, but that the media company is simply trying to scare Fios customers with a nonexistent threat. The contract in question does expire at the end of the year, so there is some probability that negotiations may extend further than that, but AMC's tactics seem a bit excessive.
But AMC might just be trying to get by; as much as a zombie's bite is scary to its victims, a zombie's gotta eat. Same goes for AMC. Without increased revenue from its distributors, AMC will continue to struggle with the massive amounts of debt foisted onto it by Cablevision when it was spun off in 2011. The debt burden has caused the company to take undesirable actions, plaguing it with bad press for subjecting all of its hit series to budget cuts, firings, and offers from other networks.
Rule no. 1: Subscribers
During the legal battle with AMC and Cablevision, Dish's blackout hit the Mad Men maker where it counts: viewership. With 14 million subscribers , Dish was able to affect AMC's ability to generate ad revenues, which is usually no problem when you have hit shows watched by millions. But as a large chunk of that audience is blacked out, there's room for ad agencies to pressure a network for lower pricing. Unfortunately for Verizon, it doesn't have the subscriber clout of Dish, with only 4.6 million video subscribers , meaning that it may have to be more accepting of AMC's terms.
It will be interesting to watch as AMC's other contracts expire. With a subscriber base of 22 million , cable giant Comcast (Nasdaq: CMCSA ) might be a formidable opponent in negotiations. Don't be surprised if Comcast customers are barraged with the same type of ads seen now by Fios subscribers. It may be AMC's only opportunity to apply pressure.
Mad men, women, and children
As unpleasant as it is to have meaningless threats scrolling across the screen as you're trying to watch your favorite shows (totally killed the mood during last night's The Walking Dead mid-season finale), it is highly unlikely that Fios customers will suffer like Dish's had to. AMC's and Dish's stocks got a boost from the reconciliation news in October, with AMC's continuing to rise. If it is able to negotiate the Verizon contract with positive terms, look for the network to get another bump in investor ratings.