Verizon Renews Deal with CBS

Verizon Communications Inc. (VZ), the largest telecom carrier in the U.S., has extended its deal with media company, CBS Corporation (CBS). This will keep the latter’s channel on Verizon’s FiOS TV network for the next three years.

Though the terms of the deal were not disclosed by either of the companies, the new deal will allow the retransmission of CBS networks, including its popular sports network, on Verizon’s FiOS TV system. Post the deal, FiOS TV subscribers in New York, Los Angeles and Dallas will continue to view CBS’ channels.

The deal comes amid CBS’ existing dispute with Time Warner Cable Inc. (TWC) over higher programming fees from the cable MSO (multi service operator).CBS intends to raise its retransmission fees by nearly 600%, which will impact the cable company’s profitability. The feud has been continuing for the past three weeks and has led to a complete blackout of CBS channels in New York, Los Angeles and Dallas.

The deal has been renewed at a time when a fresh season of the very popular National Football League (NFL) will commence. The 2013 NFL season starts on Sep 5 and will end on Feb 2, 2014, with CBS broadcasting the game from Sep 8, 2013. The renewed contract will allow FiOS TV customers to enjoy the game till the end of the season as the current one expires at the end of this year.

In the second quarter of 2013, Verizon’s fibre-based FiOS TV performed impressively adding 140,000 customers to its FiOS Video and services. The company exited the quarter with 5.0 million (up 12.6% year over year) FiOS Video customers, majority of which are in the cities of New York, Los Angeles and Dallas.

The deal was finalized within a short span of time in spite of the amount being almost the same as the amount demanded from TWC. For CBS, its distribution of channels will increase given FiOS TV’s growing popularity.

We believe that the timing of the deal strengthens Verizon’s position against Time Warner Cable in New York, Los Angeles and Dallas. Verizon is expected to benefit from the absence of CBS channels on TWC and gain a portion of the 3.2 million video subscribers that CBS currently has in those markets.

Verizon currently carries a Zacks Rank #3 (Hold). Another stock worth mentioning within this sector is Cincinnati Bell Inc. (CBB), which currently carries a Zacks Rank #1 (Strong Buy).

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