AT&T License Renewal Sets Up Rovi For Comcast, Dish

Rovi (NASDAQ:ROVI) stock rose for the second day as Cowen & Co. upgraded the digital entertainment company following its set-top box license renewal with AT&T (NYSE:T).

AT&T, which acquired satellite TV broadcaster DirecTV Group in July, on Wednesday announced a seven-year license renewal for Rovi’s interactive program guide technology.

The AT&T renewal bodes well for upcoming negotiations with Comcast (NASDAQ:CMCSA) and Dish Network (NASDAQ:DISH), said Michael Olson, a Piper Jaffray analyst, in a research report.

Rovi stock was up nearly 3.5% in morning trading in the stock market today. The stock popped 29% Wednesday and peaked that day up 41% at 16, a more than five-month high.

After Rovi lost a patent dispute with Netflix (NASDAQ:NFLX) on July 15, Rovi stock plunged 20%. The company’s licensing outlook, however, has firmed up, says Robert Stone, an analyst at Cowen, who upped his price target to 25 from 11 on Thursday.

“We believe the seven-year intellectual property license with AT&T greatly reduces uncertainty about remaining renewals,” Stone said in a research report. “The fixed annual fee starts in 2016 at an amount in line with the combined revenue from AT&T and DirecTV in 2015, and increases in subsequent years to adjust for inflation.

“We assume a 1% annual increase, and because we expect subscribers to decline via cord cutting, this arrangement looks to us like a better long-term deal for Rovi than a per-sub license.”

At Piper Jaffray, Olson also is upbeat.

“Rovi’s announcement of a seven-year renewal with AT&T/DTV is a significant win ahead of deals with both Comcast and Dish Network ending in the next several months,” he wrote. “We think this deal provides evidence of the validity of Rovi’s core IPG patents and increases our confidence in the company successfully negotiating deals with Comcast and Dish.”

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