Investment Managers:
Jionghan Dai
Tyler Haida
Joseph Kim
Layla Liang
Meiling Liu
Agenda
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Company Introduction
Stock Market Prospects
Macroeconomics
Industry Analysis
Competitor Analysis
Company Analysis
Valuation
Recommendation
VIACOM
Ownership of VIACOM
Sister
Companies
VIACOM
Private
Investment Arm
CBS
Corp.
NAI has Voting
Rights for both
companies
National
Amusements
Inc. (NAI)
Sumner M. Redstone
Exec Chairman and founder
of Viacom and CBS
Chairman of Board of NAI
NAI is 80% owned by Sumner Redstone, and 20% by his daughter. They
both have control over CBS and Viacom through voting shares.
Data Source: VIACOM 2011 10K, Forbes List of Wealthy People
Stock Market Prospect
Class A & Class B
Voting Rights
Shares Outstanding (in Millions)
Share Price as of Nov 30
VIA
Yes
51
$53.35
VIA-B
No
500
$44.76
Data Source: Yahoo Finance
Stock Market Prospect
Benchmarking against Peers
Data Source: Yahoo Finance
Macroeconomic Factors
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•
•
•
•
Age group (5-24)
Consumer Confidence Index
Leisure Time Availability
Disposable Income
Financial Crisis
Data Source: IBIS Industry Report
Supply Chain in the Entertainment &
Media Industry
Studios
• Creation of content
• GE’s Universal Studios, Disney’s Pixar,
Dreamworks Animation
• Market and distribute content
• Time Warner’s Warner Brothers, Lionsgate
Distributors
Entertainment, Viacom
Retailers
• Sell and deliver content directly to consumers
• Best Buy, Blockbuster
Data Source: Investopedia Show Biz Industry Analysis
Industry Analysis
Growth Forecast
TV Production Demand
Growth Rate
Movie Production
Industry Growth Rate
4%
6.00%
4.00%
2%
0%
4.00%
-2%
2.00%
3.00%
2.00%
-4%
-6%
0.00%
2007
-2.00%
Cable TV Subscription
Growth Rate
2008
2009
2010
2011
-8%
-10%
1.00%
0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015
• Little growth in cinema attendance
• Mixed growth in Home Media
• Slow growth in broadcast TV ; Growth in satellite and cable
pay or subscription TV bringing in TV license fee
• At most 2% growth in theater in the next 5 years, 0 growth
in TV production and about 1.5% growth in TV subscription
Data Source: IBIS World
Industry Analysis
Market shares
Time Warner,
9.50%
Sony Corp of
America, 5.80%
Fox
Entertainment
Group, 5.50%
Walt Disney,
5.20%
Other, 74%
Other, 15.40%
Sony Corp,
5.40%
NBC Universal,
7.20%
News Corp,
8.50%
Time Warner,
9.80%
Walt Disney,
30.40%
Global Movie Production
Viacom (Paramount): 3.5%
Viacom, 23.30%
News Corp, 9%
Comcast Corp,
10.90%
Other, 40.40%
Time Warner,
11%
TV Production
Viacom: 23.3%
Cable Networks
Viacom: 13.4%
Viacom, 13.40%
Walt Disney,
15.30%
Data Source: IBIS World
Industry Analysis
Characteristics and trends
• Rising production cost
• Tech trend: HD Blu-ray as standard; Smart
phones, iPods and iPads; Movie download; Digital
broadcasting
• Medium but growing concentration
• Vertically integrated industry structure
• “Low barrier of entry”
• High risk in ROI (Piracy issues)
• Potential Cannibalization of cinema by TV&
Digital Distribution
Data Source: IBIS Movie Production Industry Report
Key Competitors
•
•
•
•
•
•
CBS Corporation (CBS)
Comcast Corporation (CMCS)
Walt Disney Co. (DIS)
News Corp. (NWSA)
Time Warner Cable Inc. (TWC)
Time Warner Inc. (TWX)
Competitors Key Statistics
Company
Market Cap. (in millions) Price Per Share
VIA-B
23,974.8
37.38
CBS
16,128.1
16.84
CMCS
59,147.0
20.04
DIS
61,081.4
36.51
NWSA
41,547.9
13.64
TWC
18,447.8
61.54
TWX
33,409.5
29.49
Data Source: Yahoo Finance
Relative Share Prices
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Viacom, Inc. (NYSE:VIA.B) - Share Pricing
Walt Disney Co. (NYSE:DIS) - Share Pricing
Time Warner Cable Inc. (NYSE:TWC) - Share Pricing
Time Warner Inc. (NYSE:TWX) - Share Pricing
CBS Corporation (NYSE:CBS) - Share Pricing
News Corp. (NasdaqGS:NWSA) - Share Pricing
Data Source: Capital IQ
Key Statistics
Company Debt/Equi P.E.G.
ty
Forward
P/E
Beta
P/BV
P/Sales
VIA-B
83%
.63
12.4
1.29
2.9
1.8
DIS
20%
.84
14.2
1.4
1.7
1.7
CBS
61%
.61
11.35
2.56
1.73
1.19
CMCS
65%
1.06
12.16
1.03
1.32
1.22
TWC
349%
.84
14.0
.53
2.5
1.1
TWX
60%
.86
13.2
1.23
1.1
1.3
NWSA
55%
.81
10.34
N/A ?
1.58
1.26
Company Analysis
Product Introduction
• Product Segments:
– Media Networks (to advertisers, content
distributors, and retailers)
– Film Entertainment (motion pictures and
television programs)
• Platforms:
– Television, motion picture, Internet, and mobile
Data Source: Viacom 2011 10-K
Company Analysis
Revenue Breakdown
Segments Revenue ($ in Millions)
Ancillary-Filmed
Entertainment, 121
TV License
Fees, 391
Home
Entertainment,
511
Advertising , 1253
Theatrical, 770
Affiliate Fees, 883
Ancillary-Media
Networks, 156
Data Source: VIA Results for the Quarter and Year
Ended Sept 30, 2011
Breakdown of
Topline Revenue
Revenue Breakdown
within Segments
Breakdown of
Operating Income
Data Source: VIA Revenue Breakdown from
Bloomberg
Film Entertainment has smaller gross profit margins and are more volatile than those of
Media Networks
Company Analysis
Media Network Revenue Drivers
• Advertising
– Strength of advertising markets and general economic
conditions
– Success of programming, measured by viewership
– Seasonal variations (highest Sept-Dec)
• Affiliate fees
– Stable multi-year agreements with operators with set rate
increases
– Program availability and variations
• Ancillary
– Consumer spending and acceptance of products
– Popularity of programming and volume of content available
Data Source: VIA Results for the Quarter and Year
Ended Sept 30, 2011
Company Analysis
Film Entertainment Revenue Drivers
• Theatrical
– Audience response (determinant)
– Seasonal variations (highest Sept-Dec around holidays and summer)
• Home Entertainment
–
–
–
–
Number, timing and mix of home entertainment releases
Consumer tastes and consumption habits
Prominence given by distributors and retailers
Overall economic conditions and trends in discretionary spending
• TV and Digital License Fees
– Consumer spending and acceptance of products
– Popularity of programming and volume of content available
• Ancillary
– Acceptance of theatrical content
Data Source: VIA Results for the Quarter and Year
Ended Sept 30, 2011
Business Strategy
• Investment in programming
– “Content is King!”
Sumner M. Redstone, Chairman/Founder of
Viacom
• Grow film entertainment business
– Strategically produce smaller slate of movies/year
(~20), allocating 3-4 titles to franchise/brand movies
• Higher Margin Digital Distributors
– Amazon, Hulu, Netflix
• Growing internationally
• Expanding into newer platforms
Company Analysis
2011 Highlights
Key Metrics for this content-driven industry:
Media Networks
• Viewership ratings: How many
“eyeballs” network captured
— The 2011 Video Music Awards
(VMAs) attracted the VMAs’ largest
audience in MTV history
— MTV Network (Jersey Shore)
— Comedy Central earned doubledigit ratings growth in September
(The Roast of Charlie Sheen)
— BET Networks achieved another
record-breaking year of ratings
— Centric (Second Year) double-digit
viewer gains in the fourth quarter
Film Entertainment
• Box office sales
– Paramount is 2nd to Disney’s Buena
Vista with 18 films in the top 100
grossing films (from 1973-2011)
– Top 5 studio makers (from 20062011)
Company Analysis
Cable Subscription 2011
Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011
Company Analysis – Box Office 2011
Data Source: VIA Results for the Quarter and Year Ended Sept 30, 2011
Company Analysis
Current News
• Listing on Nasdaq from NYSE due to cost efficiencies
• Change of fiscal year end to September 2011
• Paramount Picture is set to integrate its DVD and
Blu-ray disc sales unit along with its digital video
licensing division to create a brand new division
called the Home Media Distribution (As of Sept,
2011)
• Shift its staff from London to the Los Angeles unit
• Development of its own animation unit
Total Asset of Viacom(2011)
2%
3%
4%
12%
Cash and cash equivalents
4%
Receivables, net
3%
Current Inventory
Prepaid and other assets
5%
Property and equipment, net
Fixed Inventory
Goodwill
48%
Intangibles, net
Other assets
19%
- Goodwill is the Premium the company paid to acquire other companies.
- In other word, 48% of its total asset is not used to generate future growth.
Source: Viacom 10-K(2011)
Financial Risk
• Interest Payable Debt Ratio is 32% (2012)
• Adjusted Debt Ratio(by Taking Out Goodwill and Intangible) is
65%
3,000.0
2,500.0
Unit: Mil. ($)
2,000.0
Source: 10-K 2011
Cash from Operations.
1,500.0
Interest Expense
1,000.0
500.0
0
Unit: Mil. ($)
2006
2007
2008
2009
2010
2011
• Seems Safe from Financial Risk
Source: 10-K 2011
Capital Returns to Shareholders
• Stock Repurchase Program
Repurchase of Common Stock
Unit: Mil.($)
3,000.0
2,500.0
2,000.0
1,500.0
Repurchase of Common Stock
1,000.0
500.0
0
2006
2007
2008
2009
2010
2011
Source: 10-K 2011
• 7.2 Billion Dollars more will be used to repurchase
• Current Mar. Cap. for Class B Stock is 24.72 Bil.
• Current Shareholders will benefit from it, but it also shows
that Viacom can’t find growth in its business
Capital Returns to Shareholders
•
Dividend
Dividend Paid
Unit: Mil.($)
160
140
145
120
141
100
80
91
91
90
Oct. 1, 2010
Dec. 30, 2010
Apr. 1, 2011
Dividend Paid
60
40
20
0
Jul. 1, 2011
Oct. 3, 2011
Source: 10-K 2011
- Viacom started paying dividend from 2010. (Payout Ratio is 21% for 2011)
- Along with Repurchase Plan, Current Shareholders will benefit from growth in
Dividend Per Share
- But we think dividend policy is another evidence that shows VIACOM can’t find
growth in business
What about the business?
• Good cash-cow, but suspicious about its future growth
Cash from Investing
Unit: Mil. ($)
2,000.0
1,500.0
1,000.0
500.0
0
2002
2003
2004
2005
2006
2007
Cash from Investing
2008
2009
2010
2011
Source: 10-K 2011
• The recently started dividend policy and repurchase
agreement is an evidence that VIACOM can’t find growth in its
business
• Also, absence of voting right will make the stock treated as
preferred-stock or bond asset
Valuation
Voting Rights
Shares Outstanding (in Millions)
Share Price as of Nov 30
VIA
Yes
51
$53.35
VIA-B
No
500
$44.76
DCF/Multiple Valuation?
Full Voting Rights
Common Stocks
Total Dividends
Full Voting Rights
VIA
One Portion of Dividends
No Voting Rights
VIA-B
The other Portion of Dividends
Synthesized Common Stock?
Share Number of VIA
 1:10
Share Number of VIA-B
VIA
Full Voting Rights
1/11 of Total Dividends
VIA-B
No Voting Rights
1/11 of Total Dividends
VIA  10  VIA-B  Common Stock
Synthesized Common Stock?
• If we can …
– DCF
– P/E = (PA + 10 PB)/(11 EPS), multiple valuation
• But …
– The company is repurchasing Class B stock
– Very low trading volume of Class A stock
What we do
• For class A, difficult to evaluate voting rights
premium
• For class B, treat it as preferred stock or
annuity
– Use dividend discount method
– See excel file
Recommendation
• Stock value: $38.33
• Stock Price: $44.76
• Put it on watch list