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Investment Overview for Viacom (NYSE:VIA)
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Viacom makes money primarily through its owned TV channels and through production and distribution of movies.
The company charges pay-TV service providers a subscription fee for carrying its channels. Some of Viacom's high rated channels include Nickelodeon, MTV and VH1. Viacom also sells advertising spots on its channels to advertisers such as Coca-Cola, Ford and Proctor & Gamble.
When it comes to movie business, the company makes money from DVD sales, box office receipts and TV licensing associated with films made by its Paramount studios.
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TV Channels are the primary source of Viacom's value due a large number of channels owned by Viacom and high margins for that segment. Within TV Channels, Nickelodeon is the largest channel due to high viewership and high fee per subscriber.
High number of channels & viewers
Viacom's flagship channels such as Nickelodeon, MTV and VH1 have close to 100 million subscribers each in the U.S. Apart from this, the company has numerous other channels in the U.S. with healthy viewer base. The international presence is huge and MTV alone reaches close to 600 million subscribers globally across 150 countries via its 58 MTV branded channels. Similarly, Nickelodeon reaches 330 million households globally across 110 countries.
High margins for TV channels
There is a huge difference between profits of TV channels and those of movies. Even though movies generate a substantial amount of revenues for Viacom, their margins are quite low. Movies have 5% EBITDA margins while Viacom's TV channels boast over 40% EBITDA margins.
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Increasing pay-TV competition
Increasing competition among pay-TV providers such as Comcast, Time Warner, DirecTV, AT&T and Verizon is favorable for media companies. In such a scenario, Viacom can gain negotiating power in discussions regarding the pricing of subscription fees for its programming content.
Increasing disputes with pay-TV service providers
Even though competition among pay-TV companies is increasing, they cannot continue bidding up subscription prices for channels. In order to protect consumers, pay-TV providers are increasingly taking a stand against media companies which has led to frequent channel blackouts.
Online licensing
With growth of online streaming companies such as Netflix that monetize primarily older content, licensing opportunities have expanded for media companies. This is helping them recoup some of the lost revenues from declining DVD sales.
Trefis Forecast Rationale for Nickelodeon U.S. Fee per Subscriber
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${forecast} represents the monthly fee paid by cable and satellite providers such as Comcast, Time Warner Cable, DirecTV etc. to Nickelodeon in order to provide it as a channel to their subscribers.
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${forecast} has increased by $0.02 to $0.03 per year. We believe this is due to most pay-TV service providers entering into multi-year agreements with content owners such as Viacom with predetermined yearly increases. We expect that the growth in ${forecast} will continue.
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Trefis considered the following factors in its forecast:
- Nickelodeon's appeal
- Nickelodeon remains one of the most popular channels among kids in the U.S. with several hit shows under its banner.
- There is lesser competition for this channel compared to other mainstream channels. The only noticeable competitors are The Disney Channel & Cartoon Network. This should help Nickelodeon in maintaining its subscription pricing.
- Negotiating leverage
- Content owners such as Viacom have negotiating power over pay-TV service providers.
- Given the high demand of top rated channels such as Nickelodeon, service providers will need to ensure access to such programming for customers.
- Multi-year agreements
- Typically, the pay-TV companies sign multi-year agreements with content owners with pre-defined price increments each year.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
DCF MethodologyView All Help Topics