(VIAB) Viacom’s Legal Woes Continue

Viacom(VIAB), the leading entertainment company in U.S. once again got involved in a legal tussle with cable TV distributor Cablevision Systems Corp. (CVC) regarding the streaming of cable TV shows on iPad.

It all started earlier this year when Time Warner Cable (TWC) launched a new application that allows live cable television viewing for its subscribers on the iPad while at home. But Viacom along with few other media entertainment companies objected to this application and demanded extra fees from the company.

According to these media companies, Time Warner Cable is apparently violating the programme distribution rights by streaming their channels on iPads.

In April 7, 2011,Viacom became the first media company to file a lawsuit against Time Warner Cable, thus ushering in a new media war. In response to Viacom’s filling, Time Warner Cable also filed a countersuit. According to Time Warner, tablets are nothing more than another screen to watch TV shows at home. Therefore, it never violated any agreement or copyright act.

Recently, a U.S. District Judge in Manhattan has approved a “standstill” agreement for this case, which will put this lawsuit on hold.

Again, a similar situation has evolved when Cablevision offered a similar application to its subscribers on their iPads when at home through its subsidiary online internet service provider Optimum.

Viacom went ahead and filed a lawsuit against Cablevision for violating their TV distribution rights. Moreover, the company believes that such a move will hamper their advertising revenue segment. According to them, the advertisement fees are modelled on the basis of number of viewers watching the programs on TV sets.

Currently, viewers have more options to watch their favorite TV shows through different devices like television, personal computers, tablets and smartphones. We believe that this legal suit with Viacom will shut many loopholes that exist in this media and cable industries relating to contract terms.
Going forward, tablet streaming will become a key weapon for the cable operators in order to counter the severe competitive threat from cheaper online video streaming companies like Netflix Inc. (NFLX) and Hulu.

Moreover, we believe that after this incident most of the cable companies will redefine or will bring more clarity in their contract terms with the media entertainment channels, thereby giving rise to a new business model in the cable-media industry.

We, thus, maintain our long-term Neutral recommendation for Viacom. Currently, Viacom has a Zacks#2 Rank, implying a short-term Buy rating on the stock.

CABLEVISION SYS (CVC): Free Stock Analysis Report

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TIME WARNER CAB (TWC): Free Stock Analysis Report

VIACOM INC-B (VIA.B): Free Stock Analysis Report

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