Viacom To Launch SPIKE TV In The U.K.

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Viacom (NASDAQ:VIA) recently stated that it will launch SPIKE network in the U.K. as a first step in the network’s global expansion plan. [1] Channel 5 will manage the network in the U.K.  In May 2014, Viacom announced the acquisition of Channel 5 for $757 million. To begin with, SPIKE in the U.K. will offer reality programming from Channel 5 and SPIKE U.S. The network will be launched in the next few months. We are eager to learn how the network ratings trend in the U.K., as it will be an important input before the company decides to launch the network in other countries.

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SPIKE To Launch In The U.K.

SPIKE is a male-oriented brand, which features a mix of original and acquired programming such as Tattoo Nightmares, Bar Rescue and Ink Master, and sports series such as Impact Wrestling. It also features special telecasts, live events and movies. In the U.S., the network reaches more than 99 million television households and charges an estimated $0.24 average monthly fee per subscriber from content distributors. [2] This translates into subscription revenues of $285 million annually. The network also earns revenues from other sources such as advertising, which amounts more than $300 million, according to our estimates.

Shows such as Ink Master are popular in the U.S. for the target audience and generate ratings of over 0.7 among adults 18-49. SPIKE in the U.K. will offer programming from both, SPIKE U.S. and Channel 5 in the U.K. This is a good move and will help the network gain a foothold in the country with a mix of domestic and international programming offered by Channel 5.

Note that Channel 5 is the only public service broadcaster in the U.K. to post viewership growth in recent years. It is home to some popular shows such as The Gadget Show, The Hotel Inspector and Gibraltar: Britain in the Sun. The network also imports some shows from the U.S. and reaches more than 42 million viewers. Viacom’s U.K. revenues were around $359 million in 2013 while Channel 5’s revenues were around $584 million. [3] Thus, Channel 5 has more than doubled Viacom’s revenues in the region and also offers an opportunity to capitalize on its U.S. programming in the U.K. and bring their content to the international market. The launch of SPIKE in the U.K. is an example of this setup. It will be interesting to see how the ratings trend for SPIKE after its launch. That said, it is safe to assume that the expertise of Channel 5 will help SPIKE grow in the region. Viacom itself is not new to Britain and it has been operating MTV, Nickelodeon and Comedy Central for a long time.

We estimate revenues of about $14.42 billion for Viacom in 2014, with EPS of $5.71, which is in line with the market consensus of $5.40-$5.71, as compiled by Thomson Reuters. We currently have a $91 price estimate for Viacom, which is more than 25% ahead of the current market price.

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Notes:
  1. Viacom to Roll Out Spike in International Markets, Starting With U.K., The Hollywood Reporter, Oct 8, 2014 []
  2. Viacom’s SEC Filings []
  3. Viacom to buy Channel 5 for £450 million, IHS Technology, May 1, 2014 []