Here’s How Viacom Can Benefit From Its Launch On DIRECTV Now

Recently Viacom (NASDAQ:VIA) announced that its portfolio of premium networks will launch on the new AT&T streaming service DirectTV Now. Starting in the fourth quarter of 2016, Viacom’s popular networks, such as Comedy Central, MTV, Nickelodeon and others, will be available to DirecTV Now customers. As consumption of programming on digital platforms increases, Viacom is ensuring that its content is available to its consumers, whenever and wherever they choose to enjoy it. According to our estimates, TV programming  accounts for nearly 95% of Viacom’s valuation.  Accordingly, broader distribution of its content can ensure higher revenues. While international revenues is a key driver of this segment, domestically, MTV and Nickelodeon account for more than 20% of Viacom’s valuation according to our estimates. Viacom’g growth has dimmed as the younger viewers that favor its content have increasingly gone online for entertainment.  The deal with DirecTV offers a way to win them back.  It will ensure that Viacom’s young viewers can watch its content even when they are on the move. No longer, limited to its own website and traditional Pay-TV, Viacom can indeed increase viewership and revenue by making its networks available on streaming media, in our view.

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Viacom’s Content More Suited For Streaming Media

Viacom’s content is usually targeted towards younger audiences, viewer that are more likely to consume videos on mobile devices rather than opting for a Pay-TV subscription. The company is facing a decline in its Pay-TV viewership and we expect this trend to continue over our forecast period. We expect Nickelodeon’s penetration of U.S. Pay-TV households to fall from 82% in 2016 to nearly 75% by the end of our forecast period.

We expect a similar decline in MTV’s penetration of U.S. Pay-TV households.

Viacom is witnessing a decline in its TV viewership; however the online streaming space appears promising. The popular MTV video music awards TV broadcast saw a decline of 34% in viewership this year (6.5 million views), while the online viewership of the program increased significantly from 4.4 million views on Facebook last year to 45.8 million streams this year. The company derives most of its revenues from TV advertising.  However, a shift of viewership towards streaming media should lead Viacom to explore better ways to monetize the streaming space. In addition to the recent deal with DirecTV, Viacom Networks are also available on Dish’s streaming service, Sling TV. Internationally, the company has its own suite of mobile apps called “Viacom Plex Play” which allows users to watch its content on mobile devices.

The landscape of entertainment industry is changing and as young viewers prefer to watch content online, whenever and wherever they prefer, Viacom’s strategy to make its channels available to these viewers as broadly as possible can drive growth in the long term. We believe as its Pay-TV penetration declines, revenues from alternate streaming media should be able to compensate for this loss in the long term, impacting Viacom’s valuation positively. The deal with DirecTV will help in this strategy and hence is a positive step for Viacom.

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