Viacom (NASDAQ:VIA) will release its Q3 fiscal 2012 earnings on August 3, and its media networks, especially Nickelodeon and MTV, will be in focus. We estimate that close to 80% of Viacom’s value can be attributed to its cable networks. Within this business, Nickelodeon and MTV are two key networks that not only have strong presence in the U.S. but also internationally. The U.S. business from these two channels accounts for more than 20% of Viacom’s value. However, their 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.  Therefore, the overall value contribution of these two channels is quite high.
Last quarter was marked by weak ratings for Nickelodeon, and it appears that the channel continues to lag behind Disney Channel, which took over as cable’s top rated network. Data from the last couple of months suggests so with Nickelodeon getting ahead of Disney’s (NYSE:DIS) namesake channel only occasionally.  Similarly, it appears that MTV is not doing too well either. 
Given these factors, we expect advertisement-related growth for Viacom’s cable networks to slow. On the other hand, affiliate fee is likely to grow driven by predetermined price increases which are part of a multi-year agreements between content companies and pay-TV service providers.
As far as the movie business is concerned, Viacom is nowhere near its last year performance as suggested by the figures from Box Office Mojo. Nevertheless, this should not be the cause of worry for investors since Viacom’s movie business only accounts for about 10% of its value due to low margins. Unless Viacom can demonstrate that it can be significantly more profitable in movies, the focus will remain on its media networks.
Our price estimate for Viacom stands at $69.50, implying a premium of close to 40% to the market price.Notes:
- Viacom’s SEC filings [↩] [↩]
- Disney is Number One in Cable Primetime and Total Day Viewership, USA Wins Adults 18-49 Primetime For Week Ending June 24, 2012, TV by the Numbers, June 26 2012 [↩]
- Analyst Cuts Viacom Stock Rating Due to ‘Ongoing Ratings Weakness’, The Hollywood Reporter, July 10 2012 [↩]