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Morningstar | Focus on Flagship Networks Will Help Viacom Navigate the Everchanging Media Landscape

Viacom holds a valuable portfolio of cable networks with worldwide carriage, a large production studio, and a deep content library. In our view, two of the company’s networks, Nickelodeon and MTV, particularly benefit from strong brands. The plan to focus on these two networks plus Nick Jr., BET, Comedy Central, and Paramount is the right strategic decision for the media firm to move past the issues that arose under the previous management team. Nickelodeon remains the crown jewel of Viacom. It is one of the two leading cable channels for children, and its primary competition is the other leading network, the Disney Channel. Nickelodeon has historically generated content and teen stars via organic means, leading to high margins. Competition is heating up from emerging players in traditional media and SVOD players (Netflix and Amazon) along with the planned launch of the Disney OTT product in 2019.MTV has historically produced strong cash flow margins: The channel benefits from relatively low programming costs, since content skewed heavily toward reality TV in the recent past. While attractive economically, the shows generally cannot be monetized across as many outlets in the way that sitcoms can. MTV faces more competition than ever from other entertainment options for teenagers and young adults, including social media, short-form Internet videos, and OTT streaming. However, MTV still enjoys a positive worldwide brand with teens and young adults.The management team is implementing a strategic plan that revolves around six “flagship” brands: Nickelodeon, Nick Jr., MTV, BET, Comedy Central, and Paramount. The first five brands are five of the top-rated networks for the firm and Paramount is the firm’s film studio. Management believes that the plan has to address four underlying needs of Viacom: more focus, distinct brands and content, benefit from the scale of the firm, and become more flexible to the changing media marketplace. We believe that the plan is a good starting point for reviving Viacom but think management may need to look at rationalizing the number of supporting brands/channels.