Viacom and the 21st Century

By Evan Buck - August 8, 2012 | Tickers: DTV, DISCA, IMAX, NFLX, VIA | 0 Comments

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If you watch an episode of that great old television show “Matlock,” at the conclusion of the show, the word “Viacom” is proudly flashed across a blue screen.

Viacom (NASDAQ: VIA) was once a legend in the entertainment industry and was a dominant company in the latter portion of the 20^th century.  But, like many media-industry companies, it is presently struggling to find a relevant image in the 21^st century.  Viacom is in the grip of a downturn as earnings have decreased 7 percent in the third fiscal quarter.  Revenue from Viacom’s media networks and filmed entertainment divisions showed declines.

How times have significantly changed for this company.  Look at MTV, arguably Viacom’s signature channel.  MTV no longer commands the media attention it once had when it was launched in the 1980s, although it has had a popularity surge from some of its recent franchises.

Nickelodeon, Viacom’s once-popular TV station catering to younger-aged children, has seen a sharp drop in viewership.  A lack of new programs and the transfer of some of the channel’s shows to Netflix's (NASDAQ: NFLX) digital service, could be reasons for the decline in ratings for the home of “SpongeBob.”  Netflix offers entertainment services for a relatively low monthly fee and without ads appearing on the movies or TV shows they offer.  People subscribe to Netflix to be able to watch a vast selection of movies and shows quickly and without ads, so therefore viewership of Nickelodeon and other Viacom networks decreases.

Just last month, Viacom and DIRECTV (NASDAQ: DTV) settled a court battle over affiliate fee increases.  Viacom blacked out its line of channels from DIRECTV subscribers to try to gain leverage in the dispute.  According to Viacom, if the disagreement was not resolved, the blackout would have hurt its domestic advertising revenue growth by 1.5 percentage points.

The restoration of Viacom channels to DIRECTV subscribers will help out slightly.  Although the settlement is expected to be in DIRECTV’s favor, Viacom is pretty upbeat about the resolution.

The Imax Corporation (NYSE: IMAX) has had a very good second quarter, reporting a 23% increase in revenues to $70.2 million, while adjusted net income increased 206% to $14.1 million.  Imax is expected to do quite well in its third quarter report.  Discovery Communications Inc. (NASDAQ: DISCA) has seen its 2nd quarter earnings rise 15%.  In the third quarter, Discovery Communications, although profitable and beating estimates, faces some challenges as its advertising sales growth has slowed in the wake of the London 2012 Olympics. 

Overall, the entertainment industry is currently doing fairly well.  Imax, Discovery Communications, and Disney are riding strong, while Viacom is struggling.

So, what can Viacom do to bounce back from the disappointing quarter?

1.) Produce revolutionary, attention-getting entertainment

The company needs to create a game-changer; a television program or an internet-related service that can go a long way towards gaining back the young viewers that Viacom desperately desires.  Viacom needs to produce films and entertainment that people are willing to buy.  Viacom has proven that they could do so very well in the past; now they need to build upon that previous success to move forward.

2.) Alleviate the “what have you done for me lately?” syndrome

Viacom is certainly no tiny company; it is a massive media empire with many assets on its hands.  But, that is no longer enough to influence Wall Street financiers to invest.  Viacom faces the “what have you done for me lately?” syndrome, and until Viacom coherently answers that question with a powerful statement of its intentions, investors won’t budge.  In order to succeed in the 21^st century market, Viacom needs to have a 21^st century strategy in place.  

3.) Keep looking long-term

Philippe Dauman, President and Chief Executive Officer of Viacom, said, “Despite challenging year-on-year comparisons with last year’s strong third quarter, Viacom remains committed to pursuing its long-term strategy of international expansion, continued programming investment and ongoing focus on operational discipline. Viacom continues to bring cultural powerhouses to fans around the world, and we are aggressively investing in our brands to create new hits… Paramount also continued to strengthen its platform by aligning its slate to provide upcoming releases with the best possible opportunity to succeed in the global marketplace.”  Viacom needn’t be in a panic over the poor quarter, but they need to keep looking long-term as well as short-term. 

The name of Viacom was, and still is, a dominant name in the entertainment industry.  Unfortunately, the “Matlock era” has passed by for Viacom, and the media company must build upon its former glory days to be a flourishing, thriving empire that competes in the global market.

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