Viacom (NASDAQ:VIA) recently reported its earnings for the fourth quarter. Media networks continued to see growth driven by higher ratings, especially at Nickelodeon. The company posted a 9% revenue gain and a 24% jump in net income. Better ratings translated into domestic advertising growth of 10% for the quarter. The earnings per share were 28% higher at $1.55. 
Nickelodeon and MTV continue to see high ratings this year driven by original programming and better content. The success of World War Z aided the overall earnings growth for the company. We expect the media networks to continue to perform well as Viacom continues to add new programming and build on existing shows, especially at Nickelodeon and MTV. However, given the recent surge in ratings, the comparison will become tough in the near term. The company has forecasted a weaker performance on advertising in the current quarter.  We have revised our price estimate for Viacom to $80, based on the fourth quarter earnings announcement.
Media Networks Continue To Shine
According to our estimates, media networks contribute close to 85% to Viacom’s value. The revenues for media networks division increased by 7% to $2.5 billion led by higher affiliate fees and advertising revenue.  The domestic advertising revenues grew by 10% while the international revenues were up 3% driven by the higher viewership. Similarly, domestic and international affiliate revenue increased by 6% and 4% respectively reflecting rate increases, and the benefits of digital distribution arrangements. SPIKE notched its highest quarterly rating in nearly 3 years.  By the end of September 2013, Nickelodeon scored its highest ratings in 16 years fueled by the new additions to its live-action and animation rosters (See – Viacom Will Benefit From Record Quarterly Ratings At Nickelodeon).
At MTV, the 2013 MTV Video Music Awards attracted 10.1 million viewers. The music network is benefiting from the diverse offerings such as scripted Teen Wolf and Awkward, and reality hits including Catfish and Teen Mom. Viacom stated that MTV is ramping up to introduce a new wave of original content developed by its new programming team, including Generation Cryo, House of Food, Virgin Territory, Jerks with Cameras, and new scripted series Faking It and Happyland in 2014, and look for a special Miley weekend this quarter.  Going forward we expect the cable networks to continue to grow, especially Nickelodeon and MTV as they continue to focus on developing original content and cater to different demos.
World War Z Boosts The Income At Filmed Entertainment Division
Apart from media networks, the company’s third quarter release of World War Z continued to see gains into the fourth quarter and boosted the revenues at filmed entertainment division by 11%. The movie division generated adjusted operating income of $291 million in the quarter as compared to $195 million during the same period last year.  World War Z has so far grossed $540 million globally pushing the theatrical revenues of the company 31% higher.  Home entertainment revenues were up 24%, reflecting the strong mix of titles released in the quarter, including Star Trek Into Darkness, G.I. Joe: Retaliation and World War Z. However, TV license fees were down 17%, driven by the number and mix of titles available. 
Viacom will benefit from its movie business in the near term due to the popular titles such as Nebraska, Anchorman: The Legend Continues, Transformers: Age Of Extinction, Teenage Mutant Ninja Turtles and SpongeBob SquarePants 2 scheduled to be released in 2014. We estimate a lower double-digit growth in the theatrical revenues for the full year to northward of $1.30 billion. Going forward, the overall studio business looks positive for the company, given its announcement in the previous quarter about 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.Notes: