Upgrading VIAB even without a CBS merger
We are upgrading Viacom to Neutral given material improvements in affiliate fee and international trends coupled with potential new mobile distribution. Our upgrade is not contingent on a CBS merger but if this were to occur it would be incrementally positive. Investors who believe it will take place should buy Viacom shares directly. For CBS, even if a merger happens, we remain positive on the name. On a standalone basis, CBS is very cheap and also has one of the best growth rates in the group driven by retrans and OTT. Merging with Viacom also gives it 1) material cost savings, 2) better content production opportunities and 3) a stronger DTC product. The Viacom assets would get better carriage on new distributors and a more stable outlook with traditional distributors. As such, these assets should get a better multiple. All of this should more than offset any pressure on the (already very low) CBS multiple.Viacom provides entertainment through television, film, digital media, live events, merchandise and solutions. The company operates through two segments: Media Networks, which provides entertainment content, services and related branded products for consumers in targeted demographics attractive to advertisers, content distributors and retailers through its media brands including Nickelodeon, MTV, BET, Comedy Central and Paramount Network; and Filmed Entertainment, which develops, produces, finances, acquires and distributes films, television programming and other entertainment content through its Paramount Pictures, Paramount Players, Paramount Animation and Paramount Television divisions.
CBS is a mass media company, which operates the following segments: Entertainment, which is consists of the CBS Television Network, CBS Television Studios, CBS Global Distribution Group, Network 10, CBS Interactive, CBS Sports Network, and CBS Films as well as the company's digital streaming services CBS All Access and CBSN; Cable Networks, which consists of Showtime Networks and its digital subscription streaming offering, and Smithsonian Networks; Publishing, which consists of Simon & Schuster's consumer book publishing business with imprints such as Simon & Schuster, Pocket Books, Scribner and Atria Books; and Local Media, which consists of CBS Television Stations and CBS Local Digital Media.
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