Viacom (NASDAQ:VIAB) will report its Q3 2013 earnings on August 2. We expect the company to report gain in its cable networks business due to the growth in Nickelodeon ratings. The movie business may see steady growth driven by the box-office collections for Star Trek Into Darkness and World War Z. Nickelodeon’s ratings improvement led to a 2% increase in revenues for Viacom’s cable networks division in the second quarter this year.  We expect the network ratings to improve further this year as Viacom continues to add new programming and build on existing shows. While the licensing relationship with Netflix (NASDAQ:NFLX) lapsed in May, Viacom signed a multi-year licensing deal with Amazon Prime (NASDAQ:AMZN), which will aid the company’s growth.
Growth In Cable Networks
According to our estimates, cable networks contribute close to 85% of Viacom’s value. Last year, Nickelodeon’s ratings declined due to the negative impact of alternative video platforms and lack of appeal to kids. However, the network managed to rebound its ratings by focusing on original programming and developing better content. In May 2013, Nickelodeon opened its first retail store to strengthen and promote its brand. (Read – Nickelodeon Takes A Page From Disney By Opening A New Retail Store) By the end of June 2013, the network scored 22nd week of y-o-y gains fueled by the new additions to its live-action and animation rosters.  The second season of MTV’s Catfish witnessed steady ratings while the third season of Teen Wolf saw a 15% jump in its ratings as compared to 2012.   Viacom also took full control of MTV Italia earlier in this quarter. (See – Viacom Picks Up The Remaining Stake In MTV Italia) We expect the network’s revenues to increase due to reduced time window between seasons for its popular programs and its continued focus on original programming.
Movie And Content Business
During the second quarter, Viacom witnessed a 20% decline in film and entertainment revenues primarily due to lower carryover revenues as a result of last year’s release of Mission Impossible – Ghost Protocol.  Paramount Pictures box-office market share in 2013 is around 11% so far with total grossing of $711 million led by Star Trek Into Darkness and World War Z released in this summer.  The company has recently announced revival of the Paramount Television studio after seven years signaling the increasing importance of producing content for broadcast and cable channels and newer digital platforms.  There has been an increased demand for streaming services such as Netflix, Amazon Prime and Hulu, and Viacom is trying to capture the digital space to distribute its content. Earlier in June, the company signed a multi-year licensing agreement with Amazon Prime to carry shows such as Dora the Explorer, The Backyardigans, SpongeBob SquarePants, Tosh.0, Workaholics and Awkward, which will boost the company’s licensing revenues. 
Our price estimate for Viacom stands at $69, roughly in line with the current market price.Notes:
- Viacom’s SEC Filings [↩] [↩]
- NICKELODEON RATINGS UP NEARLY 20% FOR THE WEEK, POSTS 22STRAIGHT WEEKS OF GAINS, Nickelodeon Press, Jun 25, 2013 [↩]
- MTV’s ‘Catfish’ Returns Steady, Deadline, Jun 26, 2013 [↩]
- TV Ratings: MTV’s ‘Teen Wolf’ Hits Highs With Season 3 Premiere, Hollywood Reporter, Jun 4, 2013 [↩]
- Box Office by Studio, Box Office Mojo [↩]
- Viacom revives Paramount Television studio, eyeing multiple platforms, LA Times, Jul 23, 2013 [↩]
- Amazon, Viacom Ink Multiyear Licensing Deal, Hollywood Reporter, Jun 4, 2013 [↩]