Viacom, Time Warner Cable And TV Everywhere

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Time Warner Cable (NYSE:TWC) and Viacom (NASDAQ:VIA) have reached an agreement under which Time Warner Cable’s subscribers will be able to watch live or on-demand programming from certain Viacom channels on their iOS or Android devices. [1] The previous agreement between the companies granted online access to subscribers only within their home premises if they also had Time Warner Cable’s broadband subscription. However, this deal extends this feature to outside the house, thus bringing true TV Everywhere for the cable company’s subscribers. We believe this is the inevitable trend in the entertainment industry and Time Warner is finally getting on board.

See our complete analysis for Viacom


Time To Embrace Industry Shifts

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The deal, just like many others, is an example of the shift going on in the pay-TV industry. Viewers are increasingly consuming video content on the internet, thanks to the proliferation of internet-enabled devices and the general adoption of broadband. Time Warner Cable has been a little late in adopting the streaming service to keep its subscribers satisfied. However, it’s still not too late for the company, and additional investment in streaming is likely to pay-off and help it fight the intense competition.

Viacom has been involved in some disputes with pay-TV companies including Time Warner Cable and DirecTV (NASDAQ:DTV). With Time Warner Cable, Viacom was demanding an additional fee for streaming its channels while its dispute with DirecTV was related to the hike in carriage fee. These pay-TV companies are trying to protect customer interest, be it giving additional services such as streaming or protecting them from price increases. Viewers are getting more power as alternative video platforms emerge and choices increase. Thus, Viacom has no choice but to come to a compromise and embrace the winds of change.

In essence, the entertainment industry is changing, and the new landscape points to more choices, convenient viewing options and more flexibility for consumers.

More Money For Viacom

It is unclear whether Viacom is getting any money out of this deal. Its earlier dispute with Time Warner Cable suggests that the latter may have agreed to pay additional fees for streaming Viacom’s channels. Moreover, Viacom has a strong incentive to demand fees given that digital streaming licensing is one of the key emerging revenue drivers and DVD sales for its movies have declined in the past few years.

The channels included in the deal are Nickelodeon and MTV among a few others. Nickelodeon and MTV are two biggest channels for Viacom, and their U.S. operations alone account for more than 20% of Viacom’s value. Nickelodeon has suffered some ratings decline in 2012 and some of that has been linked to increasing popularity of Netflix. The streaming of Nickelodeon to a variety of devices could be a way to hook its focus audience better and thus improve ratings. Ratings are a key criteria measured by advertisers for negotiation ad prices and thus better ratings imply more money for Viacom.

Our current price estimate for Viacom stands at $67.40, implying a premium of about 30% to the market price.

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Notes:
  1. Viacom, TW Cable reach TV Everywhere deal: Live or on-demand access to six cable nets, Chicago Tribune, Sep 10 2012 []