Viacom Inc.'s channels remained available on satellite provider Dish Network Corp.'s service early Thursday as the companies were continuing carriage-renewal negotiations past a midnight deadline, a Viacom spokesman said.

The talks come as the traditional pay-tv business faces increasing pressures because of shrinking profits for distributors, rising costs of content and the proliferation of choices for consumers beyond the bundle.

In addition, satellite-TV provider Dish is known for tough negotiating tactics that often result in its channel partners going dark for some period before a deal is signed.

On Wednesday, both sides sounded optimistic. Dish Network Chief Executive Charlie Ergen said on the company's earnings call, "There actually probably is a path to continue carriage. But it's not done yet. And obviously the devil's in the details."

A Viacom spokesman said, "As a long-standing partner, we are hopeful that we can work together to reach a deal."

Most analysts believe the sides will eventually cut a deal, given that a major pay-TV distributor has never permanently dropped a major programmer,

"In our view, there will be a renewal," wrote John Janedis, an analyst at Jefferies.

Viacom—which operates Nickelodeon, MTV and Comedy Central, among other channels—is viewed as especially vulnerable by some on Wall Street. The young audience for its channels has been the first to abandon or avoid signing up for expensive pay-TV packages in favor of cheaper, ad-free subscription services like Netflix or free, ad-supported streaming sites like YouTube and Snapchat.

For some observers, the current state of affairs offers a glimpse of how the pay-TV bundle could come under increasing assault in coming years.

"The fear is going to be that a programmer can no longer be nearly as confident in their staying power in the [pay-tv] bundle," said Rich Greenfield, an analyst at BTIG Research.

Todd Juenger, an analyst at Sanford C. Bernstein, has long argued Viacom is "uniquely vulnerable" to being the first place where major readjustments to the pay-TV bundle will be made.

He has become only more convinced of that, he wrote this week, after reviewing the growing pressure on distributors' businesses as cord-cutting proliferates.

"If the current trajectories of ARPU [average revenue per user] and affiliate fees continue at current rates, the average [pay-tv distributor] would earn $0 on video subs by the year 2023," he wrote. "So obviously something has to change. We believe Viacom is the obvious place for [pay-tv distributors] to start."

Viacom's channel's ratings have fallen markedly since 2009, the last time it signed a distribution deal with Dish, Mr. Greenfield notes.

Wednesday, a Viacom spokesman said that so far this year, "our networks represent nearly one fifth of cable viewership on Dish, which gives Dish enormous incentive to renew our agreement."

Should Viacom permanently come off Dish Network, the results would be painful for both parties. Mr. Juenger estimated it would decrease Viacom's profitability so much that its stock price, which closed at $37.38 Wednesday, would drop to $24. It also would likely require Viacom to suspend its dividend, he wrote, if it wants its debt to remain investment-grade.

Dish, meanwhile, would likely lose subscribers, he wrote, but the question is how many. If the satellite provider lost less than 15% of its subscribers, it might calculate that the blackout is worth it, he wrote.

"While we are sure there is a price at which Dish is willing to carry Viacom, meaning dramatically below current rates, Viacom is likely expecting mid-to-high single digit (percentage) rate increase," Mr. Greenfield wrote.

Viacom is under extra pressure not to accept a lower rate than that because it has "most favored nation" clauses in its contracts with other big distributors like Comcast Corp. that would mean they had the right to those same low rates, he added.

Write to Keach Hagey at keach.hagey@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com

 

(END) Dow Jones Newswires

April 21, 2016 08:05 ET (12:05 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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