MSG Networks-Altice dispute drags on with no resolution in sight

Thursday marked nine days — and five Knicks games — since Altice, parent company of Optimum TV, dropped MSG Networks from its lineup in a   carriage dispute.

The companies’ CEOs met on Monday to seek a solution, an Altice spokeswoman confirmed. Still, there is no sign of one in near-term sight.

MSG Networks carries the Islanders, Rangers and Devils games in addition to the Knicks. A carriage dispute is a disagreement over compensation between the distributor, which is Altice, to carry a channel from the provider, which is MSG Networks.

The stakes are high for both sides, each of which is debt-laden and fighting the headwinds of the cord-cutting era.

Altice has been seeking to retain subscribers by offering deals that include discounted bills, deals on fuboTV and the Gotham Sports app, and in some cases gift cards worth several hundred dollars to customers who threaten to leave.

It is unclear how many customers have resisted such offers and made the switch to Verizon Fios, DirecTV or DirecTV Stream, all of which carry MSG.

For Altice, like all cable companies, the priority is to keep internet customers, a business with much higher profit margins than carrying television channels.

MSG Networks, meanwhile, is paying a heavy financial price during the standoff. Analysts at Guggenheim, an independent investment bank, estimate that 33% of MSGN’s revenue comes from Altice subscribers.

Sportico reported that Guggenheim sent a note to investors estimating that Altice is projected to pay MSGN $127 million in carriage fees this year, a loss that would be difficult to sustain for MSG Networks’ business if the dispute persists.

That dynamic has made the Altice/MSG dispute a topic of intense interest and speculation on Wall Street.

Brandon Ross, a media analyst at LightShed Ventures, told Newsday, “MSG Networks hasn't been able to repay the debt that's been due since October, and now you get to a point where the business won't be cash-generative enough to pay the interest on the debt that's still outstanding. Generally, that leads to bankruptcy.”

In that scenario, MSGN’s creditors likely would seek relief in the form of lower rights fees to the Knicks, Islanders, Rangers and Devils, which could stabilize its business.

The Knicks and the hockey teams might be willing to strike such a deal, because being on television has an importance beyond just the money it brings in. Fans must be able to see their teams play.

“Ultimately, the value of the Knicks and Rangers goes far beyond how much revenue they're generating in a given year,” Ross said, “because the value of sports teams is way more divorced from revenue than any other business.”

MSGN is part of Sphere Entertainment, a separate company from MSG Sports, which owns the Knicks and Rangers. Sphere Entertainment’s quarterly financial report in November said MSG Networks had $821.9 million in outstanding debt. Altice USA reported consolidated net debt of $24.5 billion in its third-quarter financial report.

MSG Networks declined to comment on the potential for bankruptcy.

Ross and others have speculated about a potential juicy plot twist: MSGN merging with the YES Network, with which it already partners on the Gotham Sports app.

The MSG-Altice battle is a byproduct of a changing sports media world, one in which the rise of streaming has devastated the traditional cable TV bundle.

Regional sports networks such as MSGN are struggling around the country.

Altice says it is protecting customers from paying for expensive sports channels many do not watch. MSGN says it already has agreed to be carried on a higher tier that includes sports. The sides presumably now are haggling over prices.

Does Ross think MSG will be back on Optimum by the end of the winter sports season? “My gut feeling is no,” he said. “I could be wrong, but my gut feeling is no.”

Altice also is in negotiations for a new deal with Nexstar, a company that owns stations around the country, including WPIX in New York. WPIX carries 20 or so Mets games each season.

Without a deal, those Mets games would disappear from Optimum around the time the Knicks are preparing for the playoffs. But WPIX is a broadcast channel and thus accessible via an antenna.

By Neil Best

neil.best@newsday.com@sportswatch

Neil Best first worked at Newsday in 1982, returned in 1985 after a detour to Alaska and has been here since, specializing in high schools, college basketball, the NFL and most recently sports media and business.