As expected, Viacom reported precipitous declines in its profits and revenues in its fiscal fourth quarter this week, but Wall Street analysts generally reported that the company may be positioned to recover from its troubles.
“While Viacom’s reported CQ3 results continued to highlight the company’s operational challenges, we believe results in 2016 were impacted by some factors that may not persist going forward,” the analysts at Barclays wrote in a research note issued shortly after Viacom reported its quarterly results. The firm also noted generally that “media network trend lines [are] likely to stabilize in coming quarters.”
Wall Street investment firm Jefferies also offered a similarly positive outlook: “With the speculation around the potential CBS recombination ongoing, it appears as though mgmt. has a credible mandate if VIAB ultimately remains independent,” they wrote in their own note following the release of Viacom’s results.
However, the Jefferies analysts cautioned that they have “very modest” assumption for Viacom’s domestic SVOD licensing business. Indeed, they calculated that Viacom’s SVOD revenues declined by roughly $300 million in the first half of the company’s 2016 fiscal year.
Viacom executives addressed the company’s SVOD situation during an earnings call with investors held in conjunction with the release of Viacom’s financial results, explaining that the company’s domestic affiliate revenues declined by 19 percent in the quarter, largely due to lower revenues from SVOD arrangements stemming from the company’s decision to reduce the amount of programming its licenses to those distributors.
Bob Bakish, Viacom’s newly installed CEO, explained that Viacom is working to solidify its position in the established pay-TV market with existing players, moves he described as a “pay-TV-friendly strategy.”
In the SVOD category, “we will look at that on an opportunity-by-opportunity basis, consider specifics about a market and a specific player and a specific ask and determine what we want to do there,” Bakish said during Viacom’s earnings conference call, according to a Seeking Alpha transcript of the event. “They certainly have a role in the world from a consumer perspective, but we're looking at it as part of a holistic strategy and that will dictate what we do.”
All that said, the Jefferies analysts added that “we think there is the potential for a DTC [direct to consumer] offering in the future.”
Viacom has plenty of options if it does indeed decide to go directly to consumers with its content. The company owns brands ranging from Nickelodeon to Comedy Central to MTV to CMT, all of which could draw in fans and enthusiasts in the online space.
Of course, hanging over all of Viacom’s actions is the possibility that CBS might re-merge with the company in the near future. Already CBS has reportedly hired investment banking companies to advise it on a possible transaction with Viacom.
And, according to one analyst firm, that merger might be the only suitable option for Viacom and its shareholders. “Barring a combination with CBS, we believe that the only way for Viacom to change the current narrative is to show meaningful acceleration in affiliate fee and advertising growth,” wrote the analysts with MoffettNathanson in a brief report on the company issued after the release of Viacom’s earnings. “Given our concerns on the industry as a whole, we remain skeptical that this can be achieved.”