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Investment Overview for Viacom (NYSE:VIA)
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.
Viacom's ratings have been on a decline since 2014. Viacom's stock fell to four-year-lows in August 2015 amid renewed concerns of cord cutting and continuous fall in cable ratings.
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 95 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 several MTV branded channels. Similarly, Nickelodeon reaches over 300 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 6% EBITDA margins while Viacom's TV channels boast over 40% EBITDA margins.
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.
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. However, this has also led to a decline in traditional television ratings, which in turn, has resulted in lower advertising revenues.
Trefis Forecast Rationale for US Ticket Prices
This is the average price that a moviegoer would pay to watch a movie.
Historically, prices have increased at a steady rate of between 3% to 5%
We expect ticket prices to continue to go up.
Factors affecting ticket pricing are
- Overall inflation
- Increasing production budget of movies
Production budgets of movies are constantly increasing with increasing costs of production, the fees of stars, and other miscellaneous costs driving the ticket price up.
- 3D movies are driving ticket prices higher
- 3D movies are gaining popularity and tickets for such movies are priced at a premium. As more people watch these movies, average ticket prices will go up
- Concessional sales
Theaters are experiencing a decline in concessional sales and will want to increase the prices to compensate for the decline in the sales.
- Expected success of movies
Historically, most movies have had the same average price at the theatres; however, recent trends indicate at theaters and production studios are trying to cash in on the popularity of a movie by differentially pricing across films.
However, movies are still more expensive than DVDs and VODs
Back to Company Overview
The overall sentiment among the movie audience is that moviegoing is an expensive proposition now-a-days compared to renting a DVD, or internet TV on demand. Hence, the theaters do not have that much leeway in ticket prices.
How 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 Methodology
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