Group Members:
Ang Li
Tim Schmelzle
Tyson Banbury
Ye (Fred) Tian
Xinglong (Malone) Ma
Agenda
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Summary
Industry Overview
Porter’s 5 Forces
Company Overview
SWOT Analysis
Competitors
Valuation
Recommendation
Summary
Goal: To be the world’s leading branded entertainment
company across television, motion pictures, and digital
media platforms.
• Two main segments
• Media Networks
• Filmed Entertainment
• Ticker: VIA – Class A, Voting shares ($27.4 billion)
VIA.B – Class B, Non-voting shares ($23.7 billion)
• Targets wide range of age demographics including kids,
tweens, teens and adults
Industry Overview
United States media industry value: $ billion, 2006–10
300
255.1
261.1
266.8
258.6
264
2006
2007
2008
2009
2010
250
200
150
100
50
0
$billion
CAGR=0.9%
Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?
Ntt=media&Ntx=mode%2bmatchall&D=media&No=25&Nty=1&N=210&Ntk=All
Industry Overview
United States media industry segmentation in 2010
14%
49%
18%
Advertising
Movie & Entertainment
Publishing
19%
Source: Datamonitor http://library.marketlineinfo.com/library/DisplayContent.aspx?
Ntt=movie&Ntx=mode%2bmatchall&Nty=1&D=movie&Ntk=All&Ns=
Broadcasting & Cable TV
Porter’s Five Forces
Broadcasting & Cable TV
Supplier Power —— Medium
• Production companies form a major supplier
• Typically depends upon the quality of content
Barriers to Entry —— High
• Big players are able to maintain high levels of capital expenditure in
purchasing rights to the most popular content
• Difficult for new entrants to secure the rights to popular programs
• New entrants also have to ensure that they comply with regulations as
monitored by the Federal Communications Commission (FCC)
Threat of Substitute —— Medium High
• A significant increase in popularity of other entertainment
• A rise of downloading programs through the internet, both legally and
illegally
• TV is still the most effective form of advertising
Porter’s Five Forces
Broadcasting & Cable TV
Bargaining Power of Buyers —— Medium High
• Sensitive to the increasing concentration and dominance of cable and
satellite program distributors
• Distributors are demanding higher-quality program productions in the
HD digital format, to satisfy subscribers' unique interests
Industry Rivalry —— Very High
• Rivalry is strong between broadcasters to purchase the broadcasting
rights for the most popular programs, events and sporting events
• Players within the market are typically large, owning multiple television
channels so that they have a high level of assets, with high fixed costs
and exit costs
• Rivalry is greater between players broadcasting shows and events of
similar genres
Porter’s Five Forces
Movies & Entertainment
Supplier Power —— Medium Low
• Supplies required by film production companies include: scripts,
costumes, make-up, props, sets, cameras, film stock, lighting, and
stunt and action equipment.
• Revenue highly rely on movie industry
Barriers to Entry —— Medium High
• Diversity of audiences provides chances for both big and smaller players
• Fixed costs do not have to be high as independent films can be made on
a low budget, giving a successful independent film a high profit-tocost ratio, while a failure would incur minimal losses
• Current market situation does not offer an attractive prospect
Threat of Substitute —— Medium
• Illegal downloading through the internet and video piracy
• Cinema experience is still attractive
Porter’s Five Forces
Movies & Entertainment
Bargaining Power of Buyers —— Low
• Large number of potential customers
Industry Rivalry —— Medium
• There are a number of large market players, movie production
companies and independent companies
• The wide range and diversity of audience tastes allows films scope for
significant differentiation in terms of genre and content
Company Overview – Business Strategy
• Expanding brand through creation of programming,
channels, motion pictures, and other entertainments
• Invest in programming content that will grow ratings
across networks
• Strengthen relationships with advertising, cable, satellite,
online, mobile and licensing partners
• Develop new ways of reaching audiences
• Maintain cost-savings while executing key ‘tentpole’ films
supplemented by other smaller productions and
acquisitions
• Build international presence through both Media
Networks and Filmed Entertainment businesses
Viacom 2010 10-K, pg.2
Company Overview - History
1971: Viacom spun off from CBS, establishing itself as a public company
1985: Acquired 66% of MTV Networks
1987: National Amusements Inc. acquires 83% of Viacom
1991: Acquired controlling interests of MTV Europe
1994: $9.9 billion merger with Paramount Communications Inc.
1999: Viacom starts trading on NYSE (VIA, VIA.B)
2000: Viacom merges with CBS
2001: Acquired BET Holdings II Inc.
2005: Viacom (new) spun off, remaining company (old Viacom) changes
name to CBS Corporation
2006: Acquired several interactive platforms
2010: Announced regular quarterly cash dividend and recommences stock
repurchase program
Viacom Website, History http://www.viacom.com/aboutviacom/Pages/history.aspx
Company Overview – Business Segments
Media Networks
• MTV Networks
• Approximately 160 Networks worldwide including: MTV, VH1,
Nickelodeon, Comedy Central, CMT, Spike TV, Logo, and TV Land
• Digital Assets that provide interactive entertainment such as
videogames and virtual pets include: Neopets, Atom, and Harmonix
• BET Networks
• Provides content focused on Black media and entertainment to
over 100 million homes including BET, Centric, and BET.com
Filmed Entertainment
• Paramount Pictures Corporation – brands include Paramount Pictures,
Paramount Vintage, MTV Films, Nickelodeon Movies and Paramount
Home Entertainment
Company Overview – Segment Revenues
Media Networks
• Advertising Revenues – Sale of advertising time on program services and
digital properties
• Key factors: number of subscribers, viewer demographics, program
ratings by third party researchers
• Revenues fluctuate seasonally, generally highest in Q4 calendar
year
• Affiliate Fees – Affiliates pay Viacom for the use of their content
• Contracts with affiliate distributors are typically multi-year with
staggered end dates, providing a more stable source of income
• Ancillary Revenues – Revenues derived from content licensing and sales
of home entertainment products (DVD’s, Video-On-Demand, etc.)
2010 Media Network Segment Revenues
7%
39% 54%
Advertising Revenues
Affiliate Fees
Ancillary Revenues
Data from 2010 10-K, pg. 3
Company Overview – Segment Revenues
Filmed Entertainment
• Theatrical – Release approximately 14-16 films per year domestically
• Volatile revenues due to incurring larges costs prior to recouping
revenues to cover expenses
• Revenues are cyclical, rising during summer months
• Films often use third party financing
• Home Entertainment – Sale of DVD’s and Blue-ray discs for films
distributed by Paramount, other Viacom brands, and third parties
• Licensing – Films owned or distributed by Paramount are licensed to
video on demand, basic cable, and TV syndicates
2010 Filmed Entertainment Segment Revenues
Theatrical Revenues
6%
38%
28%
Home Entertainment Revenues
License Fees
28%
Data from 2010 10-K, pg. 11
Ancillary Revenues
Company Overview – Recent News
Fiscal Year - Change of fiscal year end from December 31 to September 30
• Better aligns financial reporting and budget planning with business
cycle (cable broadcast year)
• Compare pro forma 9-month statements
Sale of Harmonix – Board authorizes management to proceed with sale of
Harmonix, developer of music-based games (Rock Band)
• $299 million write-down in Q3 20101
• Originally purchased in 2006 for $175 million plus payouts based
on 2007 and 2008 performance1
EPIX-Netflix Deal – EPIX, a joint venture between Viacom, MGM, and
Lionsgate that offers films to subscribers, enters a multi-year deal with
Netflix to license its content to Netflix
1 http://paidcontent.org/article/419-viacom-selling-rock-band-maker-harmonix-profits-fall-on-writedowns/
Controlling Interest
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Executive Chairman Sumner Redstone controls National Amusements, Inc. (NAI)
which has voting control of VIA
In 2008 and 2009, NAI converted a portion of Class A shares to Class B shares
which it then sold to meet requirements under its restructuring indebtedness
NAI does not currently have plans to continue converting and selling VIA stock;
however, this does not guarantee this will not reoccur
Also as part of this restructuring, NAI has collateralized all of its Class A VIA
shares
This creates the potential creditors to foreclose on the collateral in the event of
a default by NAI, converting Class A stock to Class B stock and subsequently
selling the Class B shares, driving down the stock price
VIA A
11%
9%
CBS A
NAIRI
80%
Gamco Asset
Management
other
Source: Bloomberg
9%
9%
NAIRI
82%
Gamco Asset
Management
other
Company Overview – Recent Performance
Yahoo Finance: http://finance.yahoo.com/echarts?s=VIA-B+Interactive#chart9:symbol=viab;range=1y;compare=^gspc;indicator=sma(20,200)+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Management
• Viacom is overhauling its business structure
Viacom: http://www.bsu.edu/web/tsstewart2/profile.html
Fading Management
• Primary shareholder and Executive Chairman
• A lifetime of experience / education
• Considered a visionary and enigmatic
• Lifelong philosophy is that content, not
distribution medium is the key to success.
• Controlling stock interest is in an irrevocable
trust with his grandchildren being the
beneficiaries.
Sumner M. Redstone (87)
New Management
• Friend and Legal advisor to Redstone
• Been with Viacom since 1993
• Yale undergraduate and Columbia Law graduate
• Scored a perfect 1600 on SATs at the age of 13
• Significant legal and financial experience, but
little experience in managing entertainment
Phillippe Dauman, Viacom
CEO since 2006
SWOT
• Strength:
Scale and scope of business
Strong brand name & copyrights
• Weakness:
The size of the conglomerate
Declining profitability
• Opportunities:
Have a more effectively constructed management team
Develop a worldwide strategy
The outlook for broadcasting market is very lucrative
• Threats:
Audience Acceptance
Global Economic Conditions
Competitive Industries
Theft of Our Entertainment Content
Major Players
Market Share by Rev. (Millions)
Viacom
$13,770
Competitors:
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Disney
Time Warner Cable
News Corp
CBS
Time Warner Inc
$38,063
$17,868
$32,778
$13,200
$26,505
Revenue Streams
Viacom
Various Media
Networks:
Filmed
Entertainment:
Parks and Resorts:
8,288.0
5,482.0
Disney
17,162.0
Time
Warner Cable
News
Corp.
17,868.0
6,701.0
15,068.0
Time
Warner Inc.
10,683.6
7,631.0
11,703.0
11,066.0
10,761.0
Consumer Products:
2,678.0
Interactive Media:
761.0
Publishing:
8,548.0
Other:
1,531.0
Outdoor:
Total:
CBS
Corporation
793.5
1,722.6
13,770.0 38,063.0 17,868.0
Dollar figures are in Millions
32,778.0
13,199.7
26,505.0
3,736.0
60% of Viacom’s Revenue
Media Networks
Assets
16,189.0
N/A
43,694.0
21,214.0
11,326.6
36,143.0
Revenue
8,288.0
17,162.0
17,868.0
15,068.0
10,683.6
11,703.0
Profit
2,934.0
5,825.0
1,1912.0
2,718.0
649.8
3,545.0
Dollar figures are in Millions
40% of Viacom’s Revenue
Filmed Entertainment
Assets
5,549.0
N/A
0
7,122.0
0
17,060.0
Revenue
5,482.0
17,162.0
0
7,631.0
0
11,066.0
N/A
0
1,349.0
0
1,084.0
Profit
219.0
Dollar figures are in Millions
Valuation
Valuation
Valuation
Valuation
Recommendation
DCF Model Price
$36.32
+/- 10%
$32.69 - $39.95
Sensitivity Analysis Price Range
$33.32 - $40.98
Price as of December 1, 2010
$39.22
Recommendation
Not Recommended for
Purchase and Watchlist