Here’s How Viacom Can Benefit From The Acquisition Of Telefe

With the international segment accounting for nearly 70% of its valuation (according to our estimates), Viacom (NASDAQ:VIA) appears to be focused on an international growth strategy. The company recently announced the acquisition of Television Federal S.A. (Telefe) one of the main free to air channels in Argentina for a cash consideration of $345 million. This deal will give Viacom control over Argentina’s biggest content producers, strengthening Spanish content on its network. Telefe is a popular channel in Argentina, reaching 95% of households in the country with a 33% share of viewership year to date in 2016. The network produces more than 3,000 hours of Spanish language video content every year. With this acquisition, Viacom can reach millions of Spanish speakers globally and expand its international reach. This acquisition should positively impact the company’s international advertising revenues.

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Advancement Of Original Content Strategy

Viacom’s acting CEO Bob Bakish stated that local cornerstones such as Telefe in Argentina and Channel 5 in UK enable the company to advance its general original content strategy. As the company continues to grow its international business, adding “true local scale” in key markets is critical. As Viacom struggles to maintain its ratings and attract audiences to its networks, original local content can be a key growth driver. For Spanish content, Telefe can ensure that Viacom gets access to a strong library of popular, original content.

As per our estimates, Viacom’s international advertising revenues are likely to increase moderately from $3.6 billion in 2016 to nearly $3.8 billion by the end of our forecast period.

The Telefe deal will give Viacom access to 95% households in Argentina, which has a population of 43 million and should impact these advertising revenues positively, although not very significantly.

While Viacom is exploring the possibility of a merger with CBS, the company seems to be pursuing its independent growth strategy. International markets are a key driver of Viacom’s future growth and, according to our estimates, this division is the most important segment for Viacom. Having strong local partners can ensure international growth and expand the company’s global reach. We believe the acquisition of Telefe fits well in Viacom’s international growth strategy and should augment its Spanish content, driving advertising revenues from this segment.

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